September’s Inflation Was in Line With Expectations. Odds of a Rate Hike Dropped But Remain High.

Odds of a rate hike by the Federal Reserve in December decreased slightly on Thursday after September's inflation rate was in line with expectations and the GDP grew at a robust pace, but still remains elevated.

Chances of a hike stood at 79.6% on Thursday, according to the CME Group's FedWatch tool. That stands in contrast with 84.2% from Wednesday, before the latest figures were released.

The personal consumption expenditures price index climbed a seasonally adjusted 0.5% last month. The annual rate stood at 3.6%, slightly below the Dow Jones consensus but well above the Federal Reserve's 2% goal.

The core PCE index, which excludes food an energy, gained 0.3% for the month and 3.1% for the year, in line with the consensus.

Gasoline and other energy goods largely led the increase, with consumers spending $45.7 billion more compared to last year as the war in Iran keeps prices elevated with no signs of abating. Transportation services, housing and utilities and food services and accommodation followed with less than $20 billion each.

The figure was released less than a day after the central bank kept rate unchanged, staying at 3.75%-4% and in line with market expectations. The vote was not unanimous, with two voters dissenting.

In its statement following the meeting, the Federal Open Market Committee claimed that "economic activity is expanding at a strong pace" and "while uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient."

"Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little," the committee added.

However, it also noted that "inflation remains elevated" and the central bank will use upcoming information to " determine the policy stance appropriate to ensure a timely return of inflation to the Committee's 2 percent goal." "The Committee will deliver price stability," the document concluded.

Fed Chair Kevin Warsh said in the posterior press conference that there are signs that financial conditions have tightened over the weeks since the central bank hiked interest rates in September.

Speaking in the press conference following the latest policy decision, Warsh said that "we have started to see some changes in financial and credit conditions; they have tightened for some businesses and households, much as we would expect."

"Market participants are becoming somewhat more discerning in their capital allocations," he added. Warsh went on to say that he won't describe current conditions as broadly "tight" but they are helping to create a path toward lower inflation.