Market-implied odds of a Federal Reserve interest rate hike at next week’s meeting climbed to 70% Thursday morning, according to CME Group’s FedWatch gauge, as a cluster of inflation-friendly developments pushed traders toward a more aggressive view of central bank policy.
The shift came after a report showing wholesale prices rising again in August, a jump in U.S. crude oil prices past $100 a barrel, and a quarter-point rate increase from the European Central Bank. Traders also lifted the probability of another hike in December to nearly 60%, per CNBC.
Wholesale Prices Add to the Pressure
The producer price index, which tracks wholesale and pipeline cost pressures, rose 0.4% in August. That matched forecasts, but it followed an upwardly revised 0.1% gain in July, and the two readings together pushed the annual PPI level to 5.4% — a touch above what economists had expected.
Oil added its own push. Intensified hostilities in the Middle East rattled commodities traders and sent U.S. crude up 4%, putting it just over the $100 barrier.
The ECB, meanwhile, raised rates by a quarter point and lifted its inflation forecast, citing concerns that the Iran war will have deeper economic effects and a longer-lasting impact on consumer prices.
Economists See Little Room for the Fed to Stand Pat
“As the conflict with Iran drags on longer than many expected, inflation pressures are becoming increasingly entrenched, leaving investors in search of a catalyst strong enough to change the inflation narrative,” Jeffrey Roach, chief economist at LPL Financial, wrote in comments cited by CNBC. “At this rate, a hike in rates next week appears likely.”
David Russell, global head of market strategy at TradeStation, pointed to the momentum in energy markets. “More pressure is coming because crude and refined products have kept rising since the August data was collected,” he said. “The ongoing spike in oil, combined with low jobless claims, make it hard for the Fed to not hike next week.”
Policymakers get one more inflation reading before they meet. The Bureau of Labor Statistics releases its consumer price index on Friday. The Dow Jones consensus calls for a headline annual reading of 3.4%, with core inflation excluding food and energy forecast at 2.4%.
The Fed, however, treats the Commerce Department’s personal consumption expenditures price index as its official inflation yardstick — a point Chairman Kevin Warsh has reiterated recently. That gauge showed core PCE at 3.3% in July and headline at 3.7%.
BofA Sees a Green Light for a Hike
Bank of America senior U.S. economist Stephen Juneau estimated that, factoring in the August PPI reading, core PCE is tracking at a 0.26% monthly rate, which would round up to 0.3%. “This could move significantly tomorrow after CPI, but if we are correct, it should greenlight a hike at next week’s Fed meeting,” Juneau said in a note.
BofA holds one of the most hawkish Fed forecasts on Wall Street, expecting three hikes across upcoming meetings. That sits outside the consensus implied by current futures pricing, though recent data have pointed to a more determined Fed on the inflation front.
Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, argued that even a soft CPI print might not tell the full story. “Those who just look at consumer prices for their inflation information and interest rate predictions are not looking at the complete picture, and today’s PPI is evidence still of an inflation problem throughout the supply chain,” he said.
Source: www.cnbc.com — https://www.cnbc.com/2026/09/10/the-likelihood-of-a-fed-interest-rate-hike-next-week-just-got-a-lot-higher.html
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