Inflation Forecast Spikes as Fed Prepares for Aggressive Interest Rate Hikes

The Federal Reserve raised interest rates for only the fourth time this century on September 16, aiming to combat persistently elevated inflation that has lingered above the Fed's long-term target of 2% for 66 months. The hike was a necessary step, given that inflationary pressures show no signs of abating.

The latest September inflation forecast is particularly concerning, as it suggests that core personal consumption expenditures (PCE) are expected to increase from 3.7% in July to 3.78% in August and 3.97% in September. This would be a significant jump, exceeding the reported 3.4% headlined inflation for August.

The root cause of this inflation is not limited to energy prices, as previously thought. Instead, it can be attributed to President Trump's policies, specifically the Iran war, which has disrupted global oil supplies and led to a surge in gas and diesel prices. As a result, businesses have been forced to adapt by altering their transportation methods, changing shipping routes, and paying more for petroleum-based goods.

This added cost is starting to impact consumers' wallets, with core PCE expected to tick up from 3.3% in July to an estimated 3.4% in August and 3.49% in September. As a result, the Federal Reserve may need to become more aggressive with interest-rate hikes, which would be bad news for Wall Street.