Fed Considers Rate Hike As US Inflation Continues to Rise

While the cost of gasoline is a significant cause, the deteriorating inflation can’t be 100% attributed to it, as there are other factors as well: the higher bills for cellphone plans, vehicle maintenance, home appliances, and airline tickets, which ticked up 2.7% over the month and sit more than 23% over last year’s level.

When volatile expenses like food and energy are stripped away, the so-called “core” inflation rate actually cooled slightly on an annual basis to 2.4%. Yet looking purely at the month-over-month bump, core prices still posted their biggest single-month increase since April.

Due to this unexpected monthly increase, Wall Street investors now see a more than 80% chance that the Federal Reserve will raise interest rates, as Fed officials have likely been emboldened to pursue this move. Chief economist at Nationwide Kathy Bostjancic stated: “Interest rates can remain on hold only if disinflation continues, and today’s August report did not deliver that.”

To address growing public anxiety over inflation and high borrowing costs, President Donald Trump pledged $5000 for all American adults if Republicans retain control of Congress following the elections. However, the proposal faces hurdles, as it would need legislative backing and risk further accelerating inflation. Concurrently, Treasury Secretary Scott Bessent has expanded Treasury bond repurchases to help drive down long-term interest rates. Despite these efforts, the 10-year Treasury yield surged to a near three-year peak on Thursday before easing slightly to 4.9% on Friday morning. 

Economists had anticipated that price pressures would reduce once the tensions in the Middle East relax and the impact of trade softened. However, with the war in Iran showing no sign of slowing, and high gas prices expected to persist beyond November midterms, those expectations are fading. Fresh trade disputes with Canada further highlight the ongoing risk of tariff-driven cost increases.