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US services sector slows as price pressures hit four-year high

US services sector slows as price pressures hit four-year high

Money Moves

Fed holds rates as October services prices rise at the fastest pace since 2022

October 28th, 2026: Fed holds rates steady, signals more data needed

Overview

Updated Oct 30

Price pressures in the US services sector intensified in October. S&P Global's flash survey showed companies raising selling prices at the fastest pace since August 2022, with suppliers' delivery times at a four-year low.

The Federal Reserve held its benchmark rate at 3.75%-4.00% on Oct. 28, with two of 12 policymakers favoring another quarter-point hike. Consumer prices rose 3.7% in the year through September and producer prices 6.3%. The New York Fed's October survey found selling-price increases at the fastest pace since 2022, and September's ISM services report had input prices at 74.0 as growth slowed to 54.9.

Why it matters

Services inflation near four-year highs keeps the Fed pointed toward more rate hikes, pushing up mortgage, card and business loan costs into 2027.

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Key Indicators

54.9
ISM services PMI, September 2026
Readings above 50 indicate growth; the index fell from 55.4 in August.
74.0
ISM services prices index
Highest since July 2022; prices paid have risen for 112 straight months.
59.8
S&P Global output prices index, October
Flash survey reading, highest since August 2022, as firms passed on energy and transport costs.
-20.7
NY Fed business activity index, October
Weakest since March; firms reported the fastest selling-price increases since 2022.
112
Consecutive months of services price increases
Prices paid by services businesses have risen every month since 2017.
17
Industries reporting higher prices in September
No industries reported a decrease in prices paid during the month.
3.75%-4.00%
Federal funds rate target range
Held at 3.75%-4.00% on Oct. 28 after the September hike, the first in three years.
3.7%
Consumer price index, 12-month change, September
Higher than expected, extending inflation's run above the Fed's 2% target.
6.3%
Producer price index, 12-month change, September
Also exceeded forecasts as energy costs fed through to wholesale prices.

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People Involved

SM
Steve Miller
Chair, ISM Services Business Survey Committee
Released September 2026 services PMI report

Organizations Involved

Institute for Supply Management
Institute for Supply Management
Industry trade group
Publishes monthly PMI surveys tracking US economic activity

ISM publishes the monthly Purchasing Managers' Index surveys that track manufacturing and services activity across the US economy.
Board of Governors of the Federal Reserve System
Board of Governors of the Federal Reserve System
Central bank
Held rates at 3.75%-4.00% on Oct. 28; next meeting Dec. 8-9

The US central bank held its benchmark rate at 3.75%-4.00% on Oct. 28 after raising it in September, its first hike in three years.

Timeline

August 2026 October 2026

6 events Latest: October 28th, 2026 · 2 weeks ago
Tap a bar to jump to that date

  1. Fed holds rates steady, signals more data needed

    Latest Policy

    The Federal Open Market Committee voted 10-2 to keep the target range at 3.75%-4.00%. Two policymakers favored a quarter-point increase; the next meeting is Dec. 8-9.

  2. October flash survey shows fastest price rises since 2022

    Data Release

    S&P Global's flash US PMI put output prices at 59.8, the highest since August 2022, and suppliers' delivery times at a four-year low as order backlogs grew.

  3. NY Fed survey finds sharp price pressures

    Data Release

    The New York Fed's Business Leaders Survey showed selling-price increases at the fastest pace since 2022 and its activity index at its weakest since March, with supply availability worsening.

  4. Services PMI falls to 54.9 as prices hit four-year high

    Data Release

    ISM's September report showed slowing growth but surging input prices, with fuel costs the top concern cited by respondents.

  5. Federal Reserve raises rates for first time in three years

    Policy

    The Fed hiked its benchmark rate by 25 basis points to 3.75%-4.00% and flagged further increases in borrowing costs ahead.

  6. ISM services PMI at 55.4 with prices at 72.6

    Data Release

    August report showed solid growth but already-elevated cost pressures across the services sector.

Scenarios

1

Fed hikes again by early 2027

Likely Resolves by Q1 2027

Discussed by: PNC Economics

PNC Economics expects two more 25 basis point rate hikes through early 2027. If services prices keep rising and the Middle East conflict keeps energy costs elevated, the Fed is likely to follow through. The September hike was the first in three years, and the Fed has flagged further increases.

2

Inflation cools, Fed pauses

Possible Resolves by Jan 31, 2027

Discussed by: CME FedWatch tool, market pricing

Cooler CPI readings for July and August cut market odds of a November hike from 71% to 26%. If inflation continues to moderate despite the ISM price readings, the Fed could hold rates steady through early 2027.

3

Energy shock deepens, forcing faster tightening

Possible Resolves by End of 2026

Discussed by: Reuters, economists quoted in ISM report coverage

If the US-Israeli war with Iran escalates and disrupts more shipping through the Strait of Hormuz, oil prices could spike well above $90 per barrel. That would push services input prices higher and force the Fed to tighten faster than currently expected.

4

Fed pauses in October, hikes later

Likely Resolves by End of 2026

Discussed by: The Modern

The Modern reported that economists expected the Fed to leave borrowing costs unchanged at its October meeting, then raise them again later in the year. The Fed held rates on Oct. 28, with two policymakers dissenting in favor of a quarter-point hike.

5

Fed raises rates in December

Possible Resolves by Dec 9, 2026

Discussed by: DoubleLine Capital's Jeffrey Gundlach

Gundlach said his base case is a December rate hike, arguing the Fed's 'accumulation of more information' language echoes a past delay. He also said the post-meeting curve steepening shows the market pricing insufficient tightening.

Historical Context

2 moments from history that rhyme with this story — and how they unfolded.

October 1973 - March 1974

1973-74 oil embargo

OPEC members cut oil exports to the US and other Israel allies during the Yom Kippur War. Oil prices quadrupled from about $3 to $12 a barrel, and US inflation hit double digits.

Then

Gas lines, rationing, and a deep recession followed.

Now

The Fed's slow response contributed to a decade of stagflation, ending only after Paul Volcker's aggressive rate hikes in the early 1980s.

Why this matters now

Like today, energy-driven inflation is a supply-side shock that central banks struggle to control without triggering a recession.

2021-2022

2021-2022 inflation surge

Post-pandemic reopening, supply chain disruptions, and stimulus spending drove US inflation to a 40-year high above 9% in June 2022.

Then

The Fed initially called inflation 'transitory,' then hiked rates from near zero to above 5% in about a year.

Now

The tightening brought inflation down but raised recession fears and exposed the costs of waiting too long.

Why this matters now

Shows how supply-side inflation can persist and force the Fed to act even when growth is slowing, much like the current services price pressures.

Sources

(20)
+14
PR Newswire US News & World Report / Reuters Wall Street Journal Bloomberg Law PNC Financial Services StreetInsider / Reuters Finance & Commerce Quartz FinancialMarkets.com Investing.com Yahoo Finance Trading Economics Institute for Supply Management The Modern CFO Dive Bloomberg MarketScreener / Reuters Newsquawk Reuters / Investing.com Reuters / Investing.com