Inflation’s headline number idled in August, holding at 3.4% over the year. Under the hood, it revved. Core prices — the index minus food and energy — rose 0.3% in the month, faster than forecasters expected, the Labor Department said Friday. That moved the Federal Reserve closer to its first rate increase in three years. Interest-rate futures — traders’ bets on the Fed’s path — put the odds of a quarter-point hike next week near 85%, up from about 70%.
One and done?
Stocks took it well: the S&P 500 gained 0.9%, as investors welcomed a hike that could cool prices. Inside the Fed, the tougher argument is about the sequel. “If we get a hike next week, certainly we’ll get additional ones,” said Richard Clarida, a former Fed vice chair now at Pimco. Since the 1990s, the Fed has raised once and stopped just one time, in 1997. Investors have raised their tally of increases through next June from two to at least three.
The case for waiting hasn’t vanished. Fed governor Christopher Waller made a conditional one last week, built on a forecast of cooler monthly inflation; Friday’s numbers didn’t cooperate. Vincent Reinhart, a former director of the Fed’s monetary affairs division, worries markets are forcing a hike the Fed may not need yet. Without guidance, he says, markets price in too many increases, and Chairman Kevin Warsh is wary of guidance. Officials’ quarterly rate projections, due next week, could show how many they have in mind.
Your money before the meeting
Start with the cash pile. A hike generally lifts what Treasury bills and money-market funds pay, which makes a checking account paying nothing the real laggard. As an illustration, at 3.4% inflation, what cost $50,000 a year ago costs about $51,700 now. For borrowing plans, it’s safer to assume relief isn’t coming soon. Card and home-equity rates tend to track the Fed, and prediction markets on Friday afternoon gave about 94% odds of no cuts in 2026 — crowd odds, not forecasts.
Then there’s the bond fund nobody chose, riding along in a 401(k) or target-date fund. Check its duration — how far a bond’s price moves when rates change. Longer-term yields have climbed in recent weeks; the 10-year Treasury yield closed Friday at 4.974%, its highest finish since 2023, closing data show. Portfolio manager Ed Al-Hussainy thinks a hike could help settle them, while holding steady could make the selloff messier. This weekend’s the dry spell: fifteen minutes with your latest statement shows whether the umbrella’s where you left it.