Markets moved after fresh inflation and oil data
Traders quickly marked up the chance of a rate hike at next week's meeting to 70% during the morning session, based on CME Group's FedWatch readings. They also penciled in nearly 60% odds for another move in December as stubborn price pressures keep piling up. The shift followed August producer prices rising 0.4%, alongside a 0.1% upward revision to July, which together pushed the year over year PPI reading to 5.4%, a touch above expectations. Add in a 4% pop in U.S. crude that carried prices to just over $100 a barrel as Middle East tensions intensified, and the case for tighter policy strengthened.
What analysts are saying and central bank reactions
Jeffrey Roach, LPL Financial's chief economist, wrote, "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." He added, "At this rate, a hike in rates next week appears likely."
David Russell, TradeStation's global head of market strategy, said, "More pressure is coming because crude and refined products have kept rising since the August data was collected." He continued, "The ongoing spike in oil, combined with low jobless claims, make it hard for the Fed to not hike next week."
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The European Central Bank lifted rates by a quarter point and increased its inflation outlook, citing worries that the war involving Iran could deliver broader economic fallout and a longer lasting hit to consumer prices. Peter Boockvar, OnePoint BFG Wealth Partners' chief investment officer, warned that zeroing in solely on consumer-price measures ignores mounting upstream pressures, and noted that today's PPI points to inflation still moving through supply chains.
Data ahead and what it could mean for your wallet
Policymakers get one last inflation checkpoint on Friday when the Bureau of Labor Statistics reports CPI. The Dow Jones consensus calls for 3.4% on the headline annual figure and 2.4% for core. The Fed's preferred yardstick is the Commerce Department's PCE price index, which showed 3.3% core and 3.7% headline in July. Fed Chairman Kevin Warsh recently emphasized the PCE price index as the central bank's official benchmark for inflation. On June 17, 2026, the new U.S. Federal Reserve Chairman Kevin Warsh arrived to hold a press conference after a two day FOMC meeting in Washington, D.C.
Bank of America's Stephen Juneau estimates that after factoring in the August PPI print, core PCE is tracking at 0.26% month over month, which would round 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," he wrote. BofA is among the most hawkish on the Street, looking for three rate increases over upcoming meetings, a view that sits outside where futures are today.
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