US Stocks Rebound Despite Hot August Inflation Data as Fed Rate-Hike Odds Rise
Key Takeaways
- •US stocks closed higher on Friday, reversing a four-session losing streak, with the S&P 500 up 0.86%, the Nasdaq Composite up 0.96%, and the Dow gaining approximately 509 points, or 0.98%.
- •August CPI rose 0.4% month over month and 3.4% year over year, matching projections but accelerating from July, while core inflation increased 0.3%, above the 0.2% analysts expected.
- •Markets priced in an 87% probability of a 25-basis-point Federal Reserve rate hike at next week's meeting, up from 72% one day earlier and 50% one week earlier, according to CME's FedWatch tool.
- •The 10-year Treasury yield ended the session marginally below 5% after moving higher following an initial decline on the CPI release.
- •Oil prices moderated Friday, with West Texas Intermediate retreating to about $100 per barrel, after Brent crude topped $108 and diesel reached a record $6 per gallon during a volatile week that included Saudi Arabia's temporary halt to East-West Pipeline flows.
US stocks ended higher Friday after August inflation data came in above July’s levels, reversing a four-session losing streak even as the report increased expectations for Federal Reserve action at next week’s meeting.
The S&P 500 gained 0.86%, the Nasdaq Composite rose 0.96%, and the Dow Jones Industrial Average advanced 0.98%, or approximately 509 points. Despite the gains, all three major benchmarks finished the week lower.
The Consumer Price Index showed that consumer prices increased 0.4% in August from the previous month and rose 3.4% year over year. Both readings matched economist projections but represented a modest acceleration from July.
Core inflation, which excludes volatile food and energy prices, climbed 0.3% month over month. That exceeded the 0.2% increase anticipated by market analysts.
Fed Rate-Hike Expectations Increase
The stronger-than-expected core inflation reading led traders to raise their expectations for tighter monetary policy. According to CME’s FedWatch tool, markets were pricing in an 87% probability of a 25-basis-point rate increase at next week’s Federal Open Market Committee meeting.
That probability was up from 72% one day earlier and 50% one week earlier. A post from Whale Insider on X, citing Kalshi traders, said:
JUST IN: Odds of a Fed rate hike this month surge to 81%, per Kalshi traders. pic.twitter.com/SW4k887gwo — Whale Insider (@WhaleInsider) September 12, 2026
https://x.com/WhaleInsider/status/2098692599393423656?ref_src=twsrc%5Etfw
Market strategists said that reduced uncertainty around the Federal Reserve’s policy path may have contributed to increased buying during the afternoon session.
“We’ve witnessed this pattern repeatedly where macroeconomic developments trigger selling pressure, but it’s generally reversed rather swiftly when market participants recognize opportunities to purchase equities at discounted levels,” said Will Rhind, CEO of GraniteShares.
Treasury yields moved higher after initially declining following the CPI release. The yield on the 10-year note ended the session marginally below 5%.
Oil Prices Ease After Volatile Week
Energy markets were volatile throughout the week. Brent crude rose above $108 per barrel, while diesel prices reached an all-time high of $6 per gallon, adding to concerns about inflation.
Oil prices moderated on Friday, with West Texas Intermediate crude retreating to about $100 per barrel. Brent crude futures also slowed their advance, and oil futures remained essentially flat for the session after Saudi Arabia’s Ministry of Energy disclosed a temporary halt to flows through the East-West Pipeline.
Although inflation has followed a downward trajectory since May, it remains significantly above the Federal Reserve’s 2% objective. Market observers also pointed to technology-sector earnings as an important source of support for equities.
Rhind described the market as “fundamentally robust, particularly regarding earnings performance, with technology earnings standing out.”
The Federal Reserve’s policy decision next week is expected to be the next major event watched by stock-market participants.
Source: Blockonomi
