Traders now put the odds of the first rate increase since 2023 above 90%, with oil and Treasury yields doing some of the Fed’s work for it

Wall Street is bracing for the Federal Reserve’s first interest-rate increase since 2023. The Federal Open Market Committee meets September 15-16, and the CME FedWatch tool put the probability of a quarter-point hike above 90% as of September 14. Behind the shift: an August inflation print that came in hot, an oil-driven surge in Treasury yields, and a bond market that is already doing some of the Fed’s tightening for it.

The Bureau of Labor Statistics reported on September 11 that the consumer price index rose 3.4% over the 12 months through August, matching forecasts, while core inflation, which excludes food and energy, climbed 2.4% year over year. Gasoline prices alone jumped 3.9% for the month, the single largest driver of the increase.

The 10-year Treasury yield topped 5% on September 14, its highest level since October 2023, as Brent crude climbed toward $108 a barrel on supply disruptions near the Strait of Hormuz. Rising energy costs are feeding directly into the inflation data the Fed is trying to tame.

“The Federal Reserve’s hands are tied,” said Skyler Weinand, chief investment officer at Regan Capital. A rate hike “is all but assured.”

Bill Merz, head of capital markets research at U.S. Bank Asset Management, said the CPI report pushed expectations for where the policy rate peaks next year to near 4.5%. Oil, he said, has been the primary catalyst behind both the rising yields and the growing bets on multiple hikes, even as the S&P 500 sits only about 1.5% below its record high. Eric Winograd, chief U.S. economist at AllianceBernstein, called the case for stopping at one or two hikes this year weak, saying there is “very little justification” for holding back, and is penciling in an additional increase before year-end.

The move comes over the objections of President Trump, who wrote on Truth Social on September 4 that he would stop trading with deficit countries unless the Fed cut rates instead. The Fed operates independently of the White House and is not obligated to act on the demand.

Sources