Markets Tested by Higher Rates and Sticky Inflation

A rise in oil prices and sticky inflation pushed stocks lower for the week, as investors increasingly priced in the chance of a Federal Reserve rate-hiking cycle starting at the September 16 meeting. After August CPI, futures markets showed an 88% probability of a rate increase then. The piece notes a tension inside the Fed—though Warsh has stressed policymakers should follow market signals rather than “forward guidance,” market pricing may constrain the committee’s options. Equities moved higher on Friday after a slightly hotter-than-expected inflation reading, while intermediate and longer-term bonds stabilized. Markets began pricing not only a September hike, but also increases in December and April 2027. The article cites Atlanta Fed’s GDPNow tracking third-quarter growth at 4.41% and mentions resilient employment as possible reasons investors believe hikes could cool inflation without derailing growth.