The Federal Reserve appears ready to do something it hasn’t done in three years: raise interest rates. And the timing couldn’t be more politically combustible.
With the September 15-16 FOMC meeting approaching, markets are pricing in an 85-90% probability that the Fed will increase the federal funds rate by 25 basis points from its current 3.50%-3.75% range. The catalyst is straightforward: inflation is running hot at 3.4% year-over-year, well above the Fed’s 2% target, and showing no signs of cooling down on its own.
The numbers behind the hike
August’s CPI report delivered the kind of print that makes central bankers reach for the rate lever. The headline figure came in at 3.4% annually, while core CPI, which strips out food and energy, posted a 0.3% month-over-month increase. That beat expectations of 0.2%, the kind of upside surprise that nobody at the Fed wants to see.
Core CPI on an annual basis hit 2.4%, which might sound manageable until you consider that the Fed has been holding rates steady throughout 2026 waiting for inflation to come down voluntarily. It hasn’t cooperated.
