The Federal Reserve is all but certain to raise interest rates next week after August inflation came in hotter than expected — meaning higher mortgage rates, pricier car loans, and more pressure on working Americans already paying 44% more for gas since the Iran war began.
Markets now price an 85% chance of a quarter-point hike at the Fed's September 15-16 meeting, up from 70% before Friday's Consumer Price Index report, according to CME's FedWatch tool. CPI rose 0.4% in August and held at 3.4% annually. Core inflation — stripping food and energy — climbed 0.3%, beating the 0.2% economists expected. Producer prices surged 5.4% year-over-year.
Here is what the establishment press won't say plainly: inflation has been above the Fed's 2% target since March 2021 — five and a half years. Working Americans have been losing ground that entire time while Wall Street enjoyed cheap money and asset appreciation. Now the bill comes due, and the people who profited aren't the ones paying it.
The War Premium
Oil crossed $100 a barrel this week for the first time since May as the Iran war flared again. The national average gas price hit $4.27 — up 44% since hostilities began February 28, NBC News reported. Every dollar at the pump is a dollar not going to a family budget or a small business bottom line.
NerdWallet connected the dots the rest of the press tiptoes around: the Iran war is cascading through the entire economy. Mortgage rates hit 6.98% APR on Friday, up 29 basis points in a week, pegged to 10-year Treasury yields that surged to their highest level since 2007. Try buying a home at 7% when your grocery bill keeps climbing.
The Credibility Trap
Fed Chair Kevin Warsh — installed by President Trump, who wanted borrowing costs pushed down — now faces the central banker's dilemma. He told Jackson Hole last month that "the Fed's predominant focus right now should be on prices." Omair Sharif, president of Inflation Insights, told POLITICO that if Warsh doesn't deliver after that speech, "people are really going to be like: 'This is not a credible Fed.'"
Reuters reported that Seema Shah, chief global strategist at Principal Asset Management, wrote the data "all but locks in a Fed rate hike next week," adding that "policymakers are likely to conclude that more than one hike will be needed to re-establish price stability."
Notably, part of the August core CPI spike came from a single category — wireless services jumped 5.9%. Inflation Insights' Sharif acknowledged the core rate "would have been far more modest without this extraordinary rise," but told Reuters he's "not sure the Fed can play that game right now with odds of a hike pushing to the 90%-ish zone."
Who Pays
POLITICO framed the political stakes: a rate hike weeks before midterms "would anger President Donald Trump" and "further panic Republicans" already struggling to message on the economy during an unpopular war. Newsweek, meanwhile, led with the framing that experts predict "no rate cut" — technically true but burying the real story that a hike is what's coming.
The political class's discomfort is secondary. NBC News noted the cruel arithmetic: while a rate hike is "intended to tamp down on inflation," it "could also compound the affordability issues already gripping Americans." The system demands working people absorb higher borrowing costs to fight inflation that was never their fault — while the asset class that benefited from five years of loose money gets its protective cushion.
Fed Governor Christopher Waller said earlier this month he would "consider a rate hike" if inflation came in hot. It did. The question is whether Warsh's Fed acts on its words or finds another excuse to wait — and who keeps paying while they deliberate.
