The U.S. Bureau of Labor Statistics reported Friday that the Consumer Price Index rose a seasonally adjusted 0.4% in August, putting the annual headline inflation rate at 3.4%. Core CPI — which strips out volatile food and energy prices — climbed 0.3% for the month, slightly above the 0.2% consensus estimate, with the annual core rate landing at 2.4%.
Energy was the biggest driver of the headline number: gasoline prices jumped 3.9% in August and are now up 27.4% year-over-year, while fuel oil has surged 52% annually amid escalating tensions in the Middle East that pushed U.S. crude above $100 a barrel this week for the first time since 2023. Shelter costs also re-accelerated, climbing 0.3% after moderating over the prior two months.
Traders now see a hike as almost certain
Following the release, traders sharply increased bets that the Federal Open Market Committee will raise its benchmark rate by a quarter point at the September 15-16 meeting. According to CME Group's FedWatch tool, the implied odds of a hike jumped to nearly 90%, up from roughly 70% earlier in the week and just 58% a week prior. The fed funds rate has held at 3.5%-3.75% throughout 2026.
"There's no guarantee that the Fed will hike next week, but it's hard to see how the central bank can justify leaving rates on hold," said Chris Zaccarelli, chief investment officer for Northlight Asset Management, in comments carried by CNBC. Fed Chairman Kevin Warsh has repeatedly signaled a hawkish stance, saying that if inflation readings don't improve, "we have work to do."
Bank of America now expects three hikes
Bank of America senior U.S. economist Stephen Juneau said the accompanying producer price index data implies core PCE — the Fed's preferred gauge — is tracking toward a 0.3% monthly increase, which he said should "greenlight a hike" at the upcoming meeting. BofA now carries one of the most hawkish forecasts on the Street, projecting three rate increases across the Fed's remaining 2026 meetings, well above the market's current pricing for roughly two.
Market Impact: Bearish for Gold and Bitcoin, Bullish for the Dollar
A confirmed rate hike is a classic risk-off, dollar-positive event. Higher policy rates increase the opportunity cost of holding non-yielding assets like gold and raise real yields, which historically pressures XAUUSD even when the underlying driver is inflation fear rather than growth confidence. We'd expect gold to see two-way, headline-driven volatility into the September 16 decision, with a confirmed hike likely triggering an initial dip before any 'sell the fact' unwind if the Fed's forward guidance turns dovish.
Bitcoin and other risk assets typically react negatively to tightening surprises, since a stronger dollar and higher real rates reduce the appeal of speculative, non-yielding assets — consistent with BTC's pullback toward the high-$70,000s this week. For the Nasdaq, the read is more mixed: higher rates raise the discount rate applied to future tech earnings (a headwind for long-duration growth names), but strong AI-driven earnings from companies like Oracle and TSMC are currently offsetting some of that pressure. Watch the FOMC statement's dot plot on September 16 — a 'one and done' hike with dovish forward guidance would likely be read as bullish relief for both gold and equities, while confirmation of BofA's three-hike path would be broadly risk-negative across gold, crypto and high-multiple Nasdaq names.