Hotter-than-expected August inflation data and surging oil prices have pushed market expectations for a Federal Reserve rate hike to 90%, challenging the central bank's previous outlook on price stability.
Oil rebounded to $100 a barrel, and the article notes the surge complicates the Fed's inflation picture, indicating upward pressure on oil prices.
Rising odds of a Fed rate hike to 90% strengthens the US dollar as higher rates attract capital flows.
Fed rate hike expectations push the 10-year Treasury yield higher as bond prices fall.
Higher probability of Fed rate hike pressures equity valuations, likely negatively affecting the S&P 500.
Tech-heavy Nasdaq is sensitive to interest rate expectations; the surge in rate hike odds is a headwind.
August core CPI rose 0.3%, exceeding expectations and fueling a 90% market probability of a Federal Reserve rate hike next week. A rebound in oil prices to $100 per barrel further complicates the inflation outlook, forcing policymakers to reconsider their stance on transitory supply shocks.
While inflation showed signs of easing in June and July, the August core CPI surprise and rising energy costs have led officials to fear that inflation is not returning to the 2% target on its own.