Oil Inside CPI Has Already Priced the Fed’s Hike

Gasoline did more than a third of August’s 0.4% CPI rise, and fed funds futures now price an 85.7% chance of a quarter-point Fed rate hike on September 16. Dow Jones futures reopen on the evening of September 13 with that print already in the tape, oil still above $100, and Iran shipping news hanging over the Strait of Hormuz.

The stock market still found a Friday bid after the number. The 30-year Treasury did not get that luxury, and that is the chain Wednesday actually has to price.

Gasoline Did a Third of August’s CPI Jump

The Bureau of Labor Statistics said the Consumer Price Index for All Urban Consumers rose 0.4% in August after 0.1% in July, and that it was up 3.4% over 12 months, matching July’s annual rate. The line that moved the Fed funds market sits one layer down. The bureau said gasoline rose 3.9 percent in August, accounting for over one third of the monthly all-items increase, while the energy index rose 2.1% on the month and 16.3% over the year.

Core CPI, which strips food and energy, rose 0.3% after 0.2% in July. Over 12 months that core rate eased to 2.4% from 2.5%, so the annual core reading cooled even as the monthly core firmed and gasoline did the heavy lifting on the headline. Shelter rose 0.3% in August after 0.1% in July and is up 3.0% over the year. Food rose 0.1% on the month and 2.7% over 12 months. Fuel oil is up 52.0% over the year. Gasoline is up 27.4%.

AUGUST CPI, THE OIL LINE

That mix is why a print that hit the headline forecast still repriced policy. Energy is a supply shock from a war that began on February 28, and it is already inside the last inflation reading the committee will see before it votes. Shelter and the monthly core gave the hawks a second handle. The annual core ease gave the doves a thinner one. Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, treated the path as open.

The report clears the path for the FOMC to hike next week, a move that we expect will be followed by at least an additional quarter-point by year end.

Ian Lyngen, Head of U.S. Rates Strategy, BMO Capital Markets

Diane Swonk, chief economist at KPMG, put the same pressure in plainer terms on LinkedIn, writing that the burn of inflation is just too costly and that the Fed is poised to take back what it gave in cuts last year, otherwise the bond market could have a larger tantrum. The next CPI release is October 14, after this meeting is over.

Fed Funds Futures Now Price an 85.7% Hike

The Federal Reserve’s two-day meeting on September 15 and 16 ends with a statement at 2:00 p.m. Eastern on September 16 and a press conference at 2:30 p.m. The funds rate sits at 3.50% to 3.75%. A quarter-point move would take the target range to 3.75% to 4.00%. This is also a Summary of Economic Projections meeting, so the median dots land with the decision.

Implied odds from 30-day fed funds futures via CME FedWatch put that 25-basis-point hike at 85.7% as of September 13, with a hold at 14.3%. The same meeting on the Kalshi KXFED September decision ladder is 79.5% for a 25-basis-point hike, 19% for a hold, and 1% for a 50-basis-point hike. Polymarket’s international book is 79.5% hike and 20.5% hold. Those are different instruments on the same event, and the futures book is the tighter one.

A week earlier the futures-implied hike sat at 57.9% on September 6 and 60.0% on September 9. Tanker attacks then CPI did the rest: 66.4% on September 10, then 85.7% from September 11 through September 13. Two hikes are fully priced by year end. Citibank had been looking for a cut by year end and now expects an increase this month. TD Securities expects the first of three hikes in this cycle, with the next two in October and January. Chair Kevin Warsh’s Jackson Hole remarks had already pushed the base case off a hold; Friday’s print finished that job.

U.S. stock indexes still rose 1% or more on Friday because the annual headline did not blow through 3.4%. That relief does not unwind the policy math. A hold that the futures book has not priced would have to be sold as confidence on a downtrend that the monthly core and the gasoline line do not show.

Both Benchmarks Settled Above $100 on Thursday

Brent crude settled at $107.63 on September 10, up $6.42, or 6.34%, after trading as high as $108. West Texas Intermediate settled at $102.48, up $6.43, or 6.69%. Both were the highest finishes since May 19, and both recorded their steepest one-day jumps in weeks. The move followed Iranian attacks on shipping near the Strait of Hormuz after U.S. strikes on Iranian tankers, with Iran-aligned Houthis seizing Yemen’s port of Mocha the same day and adding a Red Sea problem on top of the Gulf one.

THE SUPPLY SHOCK ALREADY IN THE INDEX

• Hormuz share: In peacetime the strait carries about one-fifth of global oil, plus refined fuels headed to Asia.
• Thursday settles: Brent $107.63 and WTI $102.48, both above $100 and both the highest since May 19.
• Energy in CPI: Energy is up 16.3% over 12 months, with gasoline up 27.4% and fuel oil up 52.0%.
• Traffic: Commodity-ship crossings have run far below pre-war norms, with tracker counts in single digits on some recent days.

S&P Global no longer assumes a clean end to the war or a return to normal in the strait by the end of 2027, and it sees oil in an $80 to $100 range through next year. ANZ’s Daniel Hynes has said a full return to pre-war throughput is unlikely until late in the first quarter or early in the second quarter of 2027. A rate increase cannot reopen that waterway. It can only raise the cost of financing the rest of the economy while that shock works through gasoline, diesel, and the CPI basket.

On Thursday the S&P 500 fell 0.58%, the Nasdaq 0.65%, and the Dow 0.60%, with the S&P nearly 3% below its August 13 record close and still up 11% in 2026. Forward earnings multiples compressed to their leanest since April 2025 as the 10-year yield pushed toward 5%. Iran news remains the weekend wildcard for Sunday night’s open, but the inflation arithmetic does not need a new headline to stay intact.

Why the 30-Year Yield Is Wednesday’s Constraint

Policy-sensitive two-year yields traded as high as 4.66% on Friday, the highest since 2024. The 10-year yield finished at 4.93% after touching 4.979%, its highest level since late 2023, and it was still up 16 basis points on the week. The 30-year yield has traded at its highest since 2007, above 5.3% this month. Short rates are moving because a hike is the base case. Long rates are moving because issuance, sticky inflation, and an energy shock are hitting at once, and that is the market Treasury Secretary Scott Bessent has been trying to jawbone.

THE LONG BOND’S TWO WEEKS

1. August 19, 2026: Treasury at least doubles longer-dated liquidity buybacks to $4 billion per operation, after the 30-year yield revisits its highest since 2007.
2. September 9, 2026: A Thursday operation is sized up to $6 billion in 10- to 20-year bonds; a $39 billion 10-year auction prints the highest yield since August 2007, with $22 billion of 30-year bonds also on the calendar.
3. September 10, 2026: Brent settles at $107.63 and WTI at $102.48 as tanker attacks intensify.
4. September 11, 2026: August CPI lands; the 10-year yield ends at 4.93% after 4.979%.

MUFG has said that nine operations a quarter at up to $6 billion would imply just over $200 billion of purchases a year, and that it is uncertain how long that pace holds. The buybacks retire off-the-run paper to support liquidity. They do not shrink the debt. Yields still climbed after the $6 billion size, because investors who wanted a larger backstop did not get one. Bessent has called himself the nation’s top bond salesman and has said he has asymmetric information and is the house now. The long end has treated that as a bid to fade.

A 25-basis-point move on September 16 is almost fully in the front end. What is not in the front end is a committee that pencils two or three more hikes into 2027, or a chair who, having hiked, still leaves the 30-year to do the tightening because he will not lean on the balance sheet. Hiking into a supply shock is a blunt tool. Leaving the long end unanchored after a hold would be a different blunt tool, aimed at credibility instead of gasoline.

Apple Priced a $1,999 Foldable Into That Tape

Apple unveiled its first foldable phone on September 9, four days before this futures open and a week before the vote. The company said the iPhone Duo starts at $1,999 for 256GB, with pre-orders on October 16 and availability on October 23, in star white and night sky. Closed, it has a 5.4-inch outer display. Open, it has a 7.6-inch inner display. John Ternus, who became chief executive on September 1, led the event and put the product at the top of the range Apple has ever charged for a phone.

iPhone Duo is the most transformational change to iPhone since the original.

John Ternus, Chief Executive Officer, Apple, at the September 9 launch

That is a long-duration cash-flow story sold into a tape where the 10-year yield just tagged 4.979% and the 30-year is at a 2007 high. Growth-stock screens still added Apple after the debut, and the shares caught a bid into Friday’s rebound, because the product is new and the installed base is not going to refinance a house at 5% plus. The discount rate on those cash flows is being rewritten anyway. Ming-Chi Kuo of TF International Securities expects 7 to 8 million Duo units in the second half of 2026 against 20 to 22 million iPhone 18 Pro and Pro Max units in the same window, which is a scarce, expensive wedge, not a volume engine. A further rise in long yields does more to that multiple than a crease-free hinge does.

Energy producers and short-duration lenders get the other side of the same move. The weekend buy lists are still crowding into mega-cap growth because that is where the breakouts printed. The second-order cost sits in the bond market that sets the hurdle rate for those breakouts.

Warsh’s First Dot Plot Has to Do the Heavy Lifting

The 25-basis-point decision is the part of Wednesday that futures have already spent. The SEP is the part they have not. Kalshi’s separate ladder on the median year-end 2026 funds rate is too wide and too thin to read as a number, which is another way of saying the path after this meeting is still an argument. President Trump has called for the lowest interest rates in the world. The funds market is not pricing that call this week.

WHAT THE SEP STILL HAS TO SETTLE

• The 2026 median: Whether the committee’s own year-end funds-rate dot sits at one hike or more after this vote.
• October and January: Whether TD’s three-hike map, or a one-and-done, is the staff’s working path.
• The oil line: Whether the forecasts treat Hormuz as a temporary level shift or as a reason to keep core services under a tighter stance.
• The long end: Whether Warsh treats the 30-year as information or as a problem the short rate is supposed to fix.

A hike plus a hawkish set of dots would confirm what the 2-year already did this week. A hike plus cautious dots would hand the 30-year back to issuance, oil, and the buyback calendar. A hold, after 85.7% pricing and a gasoline-led 0.4% CPI rise, would ask the long bond to punish the miss, which is the outcome several rates desks have been more worried about than the hike itself.

The committee publishes its statement at 2:00 p.m. Eastern on September 16, and the chair takes questions at 2:30. Gasoline has already voted in the CPI. The 30-year will grade the dots.

Disclaimer: This article is news reporting and analysis for information only. It is not investment advice, a solicitation, or a recommendation to buy or sell any security, futures contract, bond, commodity, or prediction-market contract. Readers should consult a licensed financial adviser, broker, or other qualified professional before making any portfolio or trading decision. Figures, implied probabilities, and policy expectations reflect the official releases and market prices named in the piece and can change with the next print, the next auction, or the FOMC statement.