Hot PPI Report Pushes Fed Rate-Hike Odds to 76%

A hotter-than-expected wholesale inflation reading Thursday pushed the odds of a Federal Reserve interest rate hike next week sharply higher, adding to a market already on edge over surging oil prices and climbing Treasury yields.

What the data showed

August producer prices rose 5.4% year-over-year, ahead of the 5.3% economists had forecast and a clear acceleration from July's pace — even though the monthly core reading, which excludes food and energy, came in slightly softer than expected. The headline year-over-year beat was enough to meaningfully shift market expectations for next week's Federal Reserve meeting.

How markets repriced

Fed funds futures responded quickly: the implied probability of a 25-basis-point rate hike at the Fed's September 16 meeting jumped to roughly 76%, up sharply from about 60% just a day earlier. The repricing compounded pressure already building in bond markets from a separate catalyst — a more than 7% surge in oil prices tied to escalating tensions between the U.S. and Iran — pushing the 10-year Treasury yield to an intraday high of 4.914%, its highest level since October 31, 2023.

Jobless claims offer the Fed little cover

Thursday's initial jobless claims came in at 206,000 for the week ending September 5, essentially unchanged from the prior week, while continuing claims fell to 1,774,000. Neither reading shows the kind of labor-market slack that would give the Fed room to look past the hot inflation data, reinforcing the case among economists for a hawkish surprise at next week's meeting.