Fed rate hike odds surge to 90% after core inflation surprises to the upside

The Federal Reserve’s inflation fight just got a sequel nobody asked for. August’s core Consumer Price Index climbed 0.3% month-over-month, overshooting the 0.2% economists had penciled in, and the CME FedWatch tool responded almost instantly: the probability of a 25-basis-point rate hike at the September 16 FOMC meeting jumped to 90%, up from roughly 70% just 24 hours earlier.

The numbers behind the panic

The Bureau of Labor Statistics released the August CPI report on September 11, and the details weren’t kind to the rate-cut crowd. Core CPI, which strips out volatile food and energy prices, rose 2.4% on a year-over-year basis. Headline CPI was even more aggressive: 0.4% month-over-month and 3.4% year-over-year, both in line with forecasts but still uncomfortably elevated.

Energy costs are a big contributor. Oil prices are creeping toward $100 per barrel, injecting persistent upward pressure into transportation, manufacturing, and virtually every supply chain that relies on fuel.

The current Fed target range sits at 3.50% to 3.75%. If the FOMC hikes by 25 basis points next week, that range moves to 3.75% to 4.00%.

From cuts to hikes: how expectations flipped

Rewind to the start of 2026, and the consensus view was relatively dovish. Markets were pricing in multiple rate cuts over the course of the year. Fed Chair Kevin Warsh, who took the helm with a reputation for hawkishness, initially signaled patience.

Then the data stopped cooperating. Job growth remained robust, consumer spending held firm, and inflation readings refused to roll over. One by one, the anticipated cuts evaporated from the futures curve.

Futures markets are reflecting an increasing likelihood of one to two additional rate hikes before year-end, beyond the September meeting. Internal divisions at the Fed have reportedly widened. Hawkish voices are expected to point to the broad-based nature of August’s price pressures as evidence that the central bank hasn’t done enough. Warsh has so far sided with the hawks, emphasizing price stability as the Fed’s primary mandate.

What higher rates mean for risk assets

Bitcoin and other digital assets have historically moved inversely with real interest rates. When yields rise, the opportunity cost of holding non-yielding assets increases, and capital tends to flow toward safer harbors.

Bitcoin has traded with increasing sensitivity to macro data throughout 2026, particularly CPI and employment reports. Some crypto investors view persistent inflation as a long-term bull case for Bitcoin as a store of value and inflation hedge.

For traders positioning around the September 16 meeting, the trade is largely priced in at 90% odds. The real question is what comes after: whether Warsh signals a pause or opens the door to additional hikes in November and December. A sustained tightening campaign extending into 2027 is a scenario the August CPI data makes harder to dismiss.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.