US PMI and Consumer Sentiment Today: Will Oil Above $113 Revive Fed Rate-Hike Bets?

Key Takeaways

• The October US flash manufacturing and services PMIs will be released at 9:45 a.m. ET, followed by the University of Michigan’s final consumer sentiment report at 10:00 a.m. ET.
• Economists expect manufacturing PMI to ease to approximately 55.5 and services PMI to slow to around 57.9, while both remain consistent with economic expansion.
• Preliminary consumer sentiment fell to 46.3, while one-year inflation expectations rose to 4.7% and five-year expectations increased to 3.5%.
• Brent crude settled above $113 per barrel after attacks on Saudi Arabia and renewed US-Iran tensions intensified concerns about global energy supplies.
• Markets still expect the Federal Reserve to hold rates on October 28, but strong activity data and rising inflation expectations could revive speculation about another increase in December.

US financial markets are preparing for two important economic reports on Friday as investors assess whether resilient business activity and deteriorating household inflation expectations could strengthen the case for additional Federal Reserve rate hikes.

S&P Global will publish its preliminary October purchasing managers’ indexes at 9:45 a.m. Eastern Time. The University of Michigan’s final October consumer sentiment report will follow 15 minutes later.

The data arrive at a sensitive moment. Brent crude settled at $113.17 per barrel on Thursday, its highest closing level since May, before remaining close to $113 during early Friday trading. Another acceleration in business costs or consumer inflation expectations could challenge the market’s confidence that the Fed will leave interest rates unchanged next week.

US Economic Data Calendar for Today

A PMI reading above 50 indicates expanding business activity, while a figure below 50 signals contraction. Even if the manufacturing and services indexes decline as expected, the forecasts would still point to relatively strong US economic growth.

US PMI Expected to Show Continued Business Expansion

Economists expect the flash manufacturing PMI to decline modestly to 55.5 from September’s final reading of 55.9. The services PMI is forecast to ease to approximately 57.9 from 58.8.

Those numbers would represent a loss of momentum but would remain well above the 50-point expansion threshold.

September’s composite PMI reached 58.4, indicating the strongest overall business expansion in several years. Services companies benefited from resilient domestic demand, while manufacturers reported improvements in production and new orders.

For the Federal Reserve, however, the strength of headline activity may be less important than the survey’s underlying price components.

Businesses have faced higher costs from energy, transportation, imported materials and elevated borrowing rates. If companies report another sharp increase in input prices or begin passing those costs to customers more aggressively, the PMI report could reinforce concerns that inflation will remain above the Fed’s 2% target.

A stronger-than-expected manufacturing or services reading would also suggest that the economy can tolerate tighter monetary policy. That could reduce concerns that another rate increase would immediately trigger a recession.

Consumer Sentiment Remains Close to Historic Lows

The University of Michigan’s preliminary consumer sentiment index fell to 46.3 in October from 48.1 in September, missing the market forecast of 47.6.

Sentiment is now close to its lowest level on record, even as economic activity and corporate profits remain relatively strong.

The survey found that consumers remain worried about high prices, borrowing costs and their ability to purchase expensive goods. Buying conditions for durable products deteriorated sharply, while lower-income households reported particularly weak confidence.

The final headline reading is expected to remain unchanged at 46.3. A revision would be less important than any change to the survey’s inflation expectations.

Preliminary one-year inflation expectations increased to 4.7% from 4.6%, while five-year expectations rose to 3.5% from 3.4%. Both measures reached their highest levels since May.

The increase is significant because the Fed closely monitors whether households expect high inflation to persist. If consumers anticipate faster price growth, they may demand higher wages or bring forward purchases, making inflation more difficult to control.

Why Oil Above $113 Matters for the Fed

Brent crude rose 4% on Thursday to settle at $113.17 per barrel, while West Texas Intermediate climbed to $99.47.

The rally followed attacks targeting Saudi Arabian infrastructure, continued risks to tankers near Oman and renewed concerns about possible US and Israeli military action against Iran. US commercial crude inventories also declined by 3.1 million barrels.

Despite the geopolitical risks, crude shipments through the Strait of Hormuz and alternative Gulf routes have remained above pre-conflict levels. That suggests part of the recent rally reflects a geopolitical risk premium rather than an immediate collapse in physical supply.

Nevertheless, sustained oil prices above $110 could filter into gasoline, freight, aviation and manufacturing costs. The effect could eventually reach food and other consumer goods through higher transportation and production expenses.

Oil’s inflationary impact creates a difficult situation for the Fed. Raising interest rates cannot produce more crude oil or repair disrupted supply routes, but policymakers may still tighten monetary policy if the energy shock begins lifting broader prices and inflation expectations.

At the same time, expensive energy can weaken household purchasing power and slow economic growth. The Fed must therefore determine whether higher oil prices are primarily an inflation threat or a potential drag on demand.

Will Today’s Data Revive October Fed Rate-Hike Bets?

The Federal Reserve raised its target range by 25 basis points in September to 3.75%–4.00%. Its next policy decision is scheduled for October 28.

Despite recent inflation surprises, futures markets continue to favor no change at the October meeting. The probability of an October hike has fallen sharply from levels seen in September, with different market indicators recently placing the chance of a hold at approximately 85% to more than 90%.

Fed Chair Kevin Warsh has declined to provide clear guidance during the blackout period, while several officials have indicated that they are comfortable evaluating additional data before raising rates again.

Today’s reports are unlikely to change that outlook unless they deliver unusually strong or inflationary results. However, they could materially affect expectations for the December meeting.

Three scenarios are possible:

• Strong PMI and higher inflation expectations: Manufacturing and services readings above forecasts, combined with rising consumer inflation expectations, could lift Treasury yields and revive bets on another rate increase.
• Strong activity but stable inflation expectations: The Fed may still hold in October, while keeping a December hike under consideration.
• Weaker PMI and lower sentiment: Evidence that high prices and borrowing costs are damaging demand would support an October pause and could reduce expectations for additional tightening.

Market Impact: Dollar, Treasury Yields, Stocks and Gold

A stronger-than-expected set of reports would probably support the US dollar and push Treasury yields higher, particularly if the PMI surveys show accelerating input and selling prices.

Technology and other high-valuation stocks could face renewed pressure because higher yields reduce the present value of expected future earnings. The Nasdaq Composite already fell 2.6% on Thursday as concerns about AI spending and rising oil prices triggered a broad technology sell-off.

Gold could also struggle if stronger data lift real yields and the dollar. However, geopolitical risks and fears of an extended energy shock may continue to provide some safe-haven demand.

A weak set of reports would likely produce the opposite reaction. Treasury yields and the dollar could fall, while rate-sensitive equities and gold could recover. Oil would remain an important complication, however, because declining economic momentum accompanied by high energy prices would increase concerns about stagflation.

What Investors Should Watch Most Closely

The headline PMI and sentiment readings will attract the initial market reaction, but the most important details will be the following:

• Input-cost and selling-price measures in the manufacturing and services surveys
• New orders and employment components
• One-year and five-year consumer inflation expectations
• Household assessments of purchasing conditions
• Any indication that higher energy prices are affecting business or consumer behavior

With Brent trading near $113, markets need evidence that the energy shock is either temporary or contained. Strong business activity combined with another increase in inflation expectations would make it harder for the Fed to declare that September’s rate hike was sufficient.

An October pause remains the most likely outcome, but today’s PMI and consumer sentiment reports could determine whether investors enter the October 28 meeting expecting a prolonged hold or preparing for another rate increase in December.