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September 11, 2026 / 1:12 PM EDT
/ CBS News
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A hotter-than-expected inflation report has sharply raised the likelihood that the Federal Reserve will increase interest rates in September, which would mark its first rate hike since 2023.The Consumer Price Index rose at an annual rate of 3.4% in August, in line with July's reading but higher than the 3.3% economists were forecasting. One-third of the monthly increase was due to gasoline prices, which have jumped 27.4% from a year ago, according to the Labor Department.More concerning for the Fed, core prices rose 0.3% from July, higher than expected and an acceleration from the previous month's 0.2% increase. The reading, which excludes the volatile gas and food categories, suggests inflationary pressures are broadening beyond energy as higher fuel prices ripple through the economy.After the CPI report was released, the likelihood of a rate hike at the Fed's Sept. 16 meeting jumped to nearly 90%, up from 70% on Thursday, according to CME FedWatch. The inflation reading makes it more likely the Fed will raise borrowing costs as it works to bring inflation back toward its 2% target, economists said Friday.EY-Parthenon now projects the central bank will raise rates by 25 basis points at next week's meeting, bringing the federal funds rate to a target range of 3.75% to 4%."We are changing our Fed call from a hold to a 25bps hike at the FOMC meeting next week," EY-Parthenon chief economist Greg Daco wrote in a Friday note. Some Fed officials are likely to "argue in favor of a rate hike on the basis that the 'speed' of the disinflationary process is not satisfactory."The Fed is scheduled to announce its interest rate decision at 2 p.m. ET on Wednesday, Sept. 16.
