Published:
The likelihood of a Fed interest rate hike next week just got a lot higher
Market pricing lifted the probability of a Fed rate hike next week to around 70% after August wholesale inflation rose and US crude moved above $100, with further hawkishness possible into year-end; CPI is due next.
CNBC reports that the market-implied likelihood of a Fed rate hike next week has risen to about 70%, using the CME Group’s FedWatch gauge. The shift is attributed to August wholesale prices rising and to US crude oil jumping above $100 a barrel, which CNBC links to renewed concerns that inflation pressures are becoming harder to dislodge ahead of the next Fed meeting.
The article anchors the inflation case in the PPI release: wholesale prices rose 0.4% in August (in line with forecasts), and the annual PPI rate was reported at 5.4%, slightly above forecast, after an upwardly revised July print. It also highlights that oil and refined-product prices have continued to climb since the wholesale data were collected, with the stated implication that cost pressures may persist.
CNBC further notes that traders are considering the possibility of another increase before year-end (described as near 60% for December), alongside the upcoming CPI release on Friday. It cites a consensus outlook for the headline CPI rate and a forecast for core CPI, while reiterating that the Fed focuses on the PCE price index and referencing commentary on how August wholesale inflation could translate into a higher core PCE pace.
What to watch next is the CPI report on Friday and how it affects the inflation narrative and the Fed funds pricing implied by FedWatch, particularly given the sensitivity to oil-driven cost dynamics.
Why this matters for FX
This is useful FX context because it ties near-term Fed rate expectations to two macro drivers that directly affect interest-rate differentials: producer-price inflation pressures and an oil-driven inflation shock. If markets increasingly price a higher Fed path, USD money-market rates and broader financial conditions typically tighten versus peers, changing the relative attractiveness of USD assets. It also incorporates ECB communication and risk sentiment tied to Middle East hostilities, which can feed into global safe-haven flows and cross-currency moves.