Fed Set to Hike Rates for First Time Since 2023 as Oil War Burns

The Numbers, and They Are Not Good

The Consumer Price Index rose at an annual rate of 3.4% in August, according to the Labor Department. That matched July's reading but came in above the 3.3% economists were forecasting. One third of the monthly increase came from gasoline prices, which have surged 27.4% from a year ago.

The more alarming number is the core reading. Core prices, which strip out food and gas to give a cleaner picture of underlying inflation, rose 0.3% from July. That beat expectations and accelerated from the previous month's 0.2% increase. CBS News reports that this suggests inflationary pressure is spreading beyond energy as higher fuel costs ripple through the broader economy. In other words, this isn't just a gas station problem anymore.

The Fed's Hand Just Got Forced

Before Friday's CPI release, markets put the odds of a September rate hike at around 70%. After the report dropped, that number jumped to nearly 90%, according to CME FedWatch. EY-Parthenon has officially changed its forecast from a hold to a 25 basis point hike, which would push the federal funds rate to a target range of 3.75% to 4%.

"We are changing our Fed call from a hold to a 25bps hike at the FOMC meeting next week," EY-Parthenon chief economist Greg Daco wrote in a Friday note, adding that some Fed officials will "argue in favor of a rate hike on the basis that the 'speed' of the disinflationary process is not satisfactory." Translation: prices aren't falling fast enough, and the Fed is losing patience. The decision lands at 2 p.m. ET on Wednesday, September 16.

Nationwide chief economist Kathy Bostjancic put it plainly. "The renewed march higher in oil, gasoline and diesel prices adds to concerns that higher energy prices could spill over to other goods and services and inflation expectations," she wrote Friday. "As such, we are now looking for the Fed to raise rates by 25 basis points at next week's policy meeting."

This Probably Isn't the Last One

CBS News reports that Capital Economics is already projecting a second 0.25 percentage point hike in December, followed by another in March 2027. So if you were hoping this was a one-and-done situation, that forecast is not for you.

The last time the Fed raised rates was July 2023, when it was trying to beat back the post-pandemic inflation surge. The Fed spent most of 2024 and 2025 holding steady, then cutting. Now it's back to hiking. We are, as a nation, doing this again.

A Committee Already Itching to Move

The Fed's rate-setting body, the 12-person Federal Open Market Committee, was already showing cracks at its July meeting. The committee held rates steady then, but three members dissented and voted to hike. Fed Governor Christopher Waller had signaled he would back a September increase if inflation didn't show meaningful progress toward the 2% target. It did not.

So the internal pressure was already there before Friday's report. This data just handed the hawks everything they needed.

Two Wars and $105 Oil

Here is the backdrop making all of this worse. The Iran war, which began at the end of February, has created a global oil shortage and driven a sustained spike in energy costs. CBS News reports that inflation is now a full percentage point higher than it was before the conflict started. Brent crude was trading around $105 a barrel on Friday.

And then there's Russia. Ukrainian drone strikes on Russian energy infrastructure have damaged refining capacity and contributed to a global fuel shortfall, adding more upward pressure on oil prices. The August CPI data was collected before the most recent run-up in fuel costs. Which means the September numbers could be worse. Diesel, the lifeblood of trucking, construction, and agriculture, broke above six dollars a gallon this week. Everything that moves or gets built in this country is about to get more expensive.

What This Means for You

A rate hike raises borrowing costs across the board. Mortgages get more expensive. Credit card interest rates go up. Auto loans get pricier. If you are trying to buy a house right now, this is not the news you wanted on a Friday morning.

The one silver lining, and CBS News notes this, is that savers will see better returns on CDs and high-yield savings accounts. So if you have a large pile of cash sitting in a savings account and no debt, congratulations. You are doing great. Most people are not doing that.