Weekly Recap: Hot Inflation Data Fails to Stop U.S. Stocks From Rallying 1%
Key Takeaways
- •Markets assigned about an 87% probability to a 25-basis-point Fed rate increase next week, according to CME FedWatch.
- •Core CPI rose 0.3% in August, exceeding the 0.2% analyst estimate and contributing to higher rate-hike expectations.
- •The Dow, S&P 500, and Nasdaq all advanced Friday but remained lower for the week.
- •West Texas Intermediate crude fell back to around $100 per barrel after Brent crude topped $108 and diesel reached $6 per gallon during the week.
- •Inflation remains above the Federal Reserve’s 2% target, making next week’s policy meeting a key test for equities.
U.S. stocks closed higher Friday after August Consumer Price Index data came in slightly hotter than expected, increasing the likelihood of a Federal Reserve rate hike next week. The S&P 500 rose 0.86%, the Nasdaq gained 0.96%, and the Dow Jones Industrial Average climbed 0.98%, or around 509 points.
The gains snapped a four-day losing streak, although all three major indexes still finished the week lower.
August CPI showed that overall consumer prices rose 0.4% month over month and 3.4% year over year. Both readings matched economist expectations but were slightly higher than July’s figures. Core CPI, which excludes food and energy prices, increased 0.3% from the previous month, exceeding the 0.2% estimate forecast by analysts. Core CPI is tracked separately because food and energy prices can be volatile.
Rate Hike Odds Rise After Inflation Report
The stronger core reading led traders to increase their expectations for a Federal Reserve move. According to the CME’s FedWatch tool, markets are pricing in roughly an 87% chance that the Fed will raise interest rates by 25 basis points at next week’s Federal Open Market Committee meeting.
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
The probability cited in the post rose from 72% one day earlier and 50% a week ago. Analysts said the increase in rate-hike expectations reduced some uncertainty in the market and contributed to the afternoon rally. The X post is available here.
“We’ve seen this trend multiple times where macro factors will induce a selloff, but it’s typically bought back pretty quickly when investors realize that they’re able to buy the market on the dip,” said Will Rhind, CEO of GraniteShares.
Treasury yields moved higher after initially declining following the CPI release. The yield on the 10-year Treasury note ended the session just below 5%.
Oil Prices Retreat After Volatile Week
Oil prices experienced a turbulent week. Brent crude rose above $108 per barrel, while diesel reached a record $6 per gallon, adding to inflation concerns.
Prices cooled Friday, however, with West Texas Intermediate crude falling back to $100 per barrel. Brent crude futures also slowed their advance. Saudi Arabia’s Ministry of Energy announced a temporary suspension of flows through the East-West Pipeline, but oil futures were roughly unchanged on the day despite the announcement.
Overall inflation has been trending lower since May but remains well above the Federal Reserve’s 2% target. Analysts also identified technology earnings as a source of strength for the broader market.
Rhind said the market is “fundamentally strong, at least as far as earnings are concerned, and particularly tech earnings.” The Fed’s policy meeting next week is expected to be the next major test for equities.
Source: CoinCentral
