September's inflation report complicates things for Kevin Warsh 's Federal Reserve . The consumer price index rose 3.7% on a year-over-year basis, exceeding a Dow Jones forecast of a 3.6% gain. Core CPI, which removes food and energy inputs, increased by 2.6%, also more than economists expected. Markets did not take those numbers well. Stocks rolled over and gave up gains seen earlier in the session, while Treasury yields spiked higher. Traders also raced to price in higher Fed rates before year-end. Odds for an Oct. 28 quarter-point hike increased to 53.7% from just 22.1% a day ago, according to fed funds futures trading measured by CME's FedWatch tool.

Those odds are still likely suppressed by the notion the Fed will avoid raising rates just before an election. December odds are even more interesting. There is now a greater than 95% chance of at least one hike before the year is out. And included in that is a 40% chance that rates are higher by a half-percentage point, that's double the odds one day ago. "This reaction to this morning's much higher than expected CPI print reminds me of the oft-quoted adage from Mike Tyson - 'Everybody has a plan until they get punched in the face.' We are wondering if the Fed, and especially Chair Warsh, is feeling the same this morning," John Kerschner, portfolio manager at Janus Henderson, said in an email.

Here's what other economists, strategists and investors on the Street had to say: Jeff Schulze, head investment strategist at Franklin Templeton Institute: "Today's release should be a modest headwind to risk assets, as expectations for near-term rate hikes increases pressure on the long end of the curve which should strengthen the dollar but be a headwind for equity valuations." Tim Urbanowicz, chief investment strategist at Innovator ETFs from Goldman Sachs Asset Management: "Today's print puts the Fed's tactical breather priced into the market for October in question.

With $100-plus crude adding friction to already sticky core prices, the latest data increasingly complicates the disinflation narrative and may limit the Fed's flexibility." Chris Rupkey, chief economist at FWDBonds: "There is increasing evidence that the energy price shock caused by the war in the Middle East is starting to produce price increases in other core goods and services. ... It is clear that as long as geopolitical risks lead to higher energy costs, there will be cost pressures on many businesses that force them to pass the inflation hot potato on to other consumers and companies.

Inflation remains sticky and that means Fed officials may need to raise interest rates higher and keep them there for longer in 2027." Brad Conger, chief investment officer at Hirtle & Co.: "September CPI leaves intact the upward trend in core prices over the last 6 months. At the margin, it bolsters the case for a hike at the October FOMC.

However, we think the bigger picture is the balance of risks. The economy is growing strongly so the FOMC can place more emphasis on the inflation mandate. Finally, I believe [Chairman Kevin Warsh] understands that the recent massacre of the long end owes something to lack of inflation fighting credibility.

So, his calculus is that a hike can settle the long end." Sonu Varghese, chief macro strategist at Carson Group: "CPI came in hot and it wasn't just fuel prices, as core inflation ran at a 3.7% annualized pace in September and 3.2% over three years.

The only surprise is that investors keep getting surprised by broad-based inflation. And we've yet to see the full impact of higher diesel prices and the AI boom. Another Fed hike to 4.3% looks likely this year, but that's hardly restrictive enough to bring inflation down to 2%." Jeffrey Roach, chief economist at LPL Financial: "Inflation pressures are broadening beyond energy, suggesting the last mile back to target could remain bumpy and keep interest rates elevated. The latest report complicates the Fed's decision this month, as the road back to price stability is looking increasingly difficult to navigate."

Peter Boockvar, chief investment officer of One Point BFG Wealth Partners: "I'll argue again that 3-4% headline inflation remains the new 1-2% and the persistency of price gains continues and certainly on the business side which we'll see with tomorrow's PPI which is running even hotter than CPI." Jamie Cox, managing partner for Harris Financial Group: "Inflation is cooking with gas. It is abundantly clear where the inflation impulse originates, but two wars need to end before we get any relief. The Federal Reserve made the mistake of calling covid era inflation transitory, and now it appears they are set to make the same mistake in reverse on the energy supply shock." Bret Kenwell, U.S. investment analyst at eToro : "The bigger concern is the growing squeeze on consumers: Annual headline CPI has now outpaced annual wage growth for a sixth consecutive month.

In other words, prices are rising faster than paychecks. Consumers are not only paying more for everyday expenses, but their income is failing to keep pace, a dynamic that could finally throttle the consumer after continued resilience in the face of mounting macroeconomic pressure." Jeff Schulze, head investment strategist at Franklin Templeton Institute: "Today's release should be a modest headwind to risk assets, as expectations for near-term rate hikes increases pressure on the long end of the curve which should strengthen the dollar but be a headwind for equity valuations." — CNBC's Michelle Fox and John Melloy contributed reporting.