Fed Hike Bets Surge to 90% After August Core CPI Tops Forecasts

A hotter-than-expected inflation print has rapidly shifted market pricing toward another Federal Reserve rate increase. Core CPI rose 0.3% month over month in August, above the 0.2% consensus estimate, prompting the CME FedWatch tool to lift the implied odds of a 25-basis-point hike at the September 16 FOMC meeting to 90%, from about 70% a day earlier. The Bureau of Labor Statistics released the August CPI report on September 11. Core CPI, which excludes food and energy, was up 2.4% year over year. Headline CPI increased 0.4% month over month and 3.4% year over year, matching forecasts but keeping inflation at levels that remain uncomfortable for policymakers. Energy is again a key driver. Oil prices have been moving toward $100 a barrel, feeding through to transportation, manufacturing, and fuel-dependent supply chains. The Fed's current target range stands at 3.50% to 3.75%. A quarter-point move next week would lift the range to 3.75% to 4.00%. Earlier in 2026, markets largely expected multiple rate cuts over the year. Fed Chair Kevin Warsh, seen as hawkish, initially signaled patience, but resilient job growth, steady consumer spending, and inflation that failed to cool steadily pushed those cut expectations out of the futures curve. Markets now reflect rising odds of one to two additional hikes by year-end beyond September. Reports also suggest widening internal divisions at the Fed. Hawks are likely to cite the broad-based nature of August's price pressures as evidence policy has not tightened enough. Warsh has generally aligned with that camp, reiterating price stability as the central bank's primary mandate. Higher rates matter for risk assets. Bitcoin and other digital assets have often moved inversely with real interest rates, as rising yields increase the opportunity cost of holding non-yielding assets and can steer capital toward safer alternatives. In 2026, Bitcoin has traded with growing sensitivity to macro releases, especially CPI and employment data. While some crypto investors argue persistent inflation supports Bitcoin's long-term "store of value" narrative, the near-term focus is the Fed's messaging. With a September hike now largely priced at 90% odds, attention is turning to whether Warsh signals a pause or keeps the door open to additional moves in November and December. The August CPI report makes a tightening cycle that stretches into 2027 harder to rule out.