Leadership1 publisher3 min readPublished
EY-Parthenon Switches to Fed Hike Call After Core CPI Hits 0.3%; Nationwide Cites Rising Oil and Gas Prices
CME FedWatch put the odds of an increase at the Sept. 16 meeting near 90% after August's core reading, and Capital Economics expects two further quarter-point moves by March 2027. The August data predates $100 oil.
The Board Room · Leadership desk
What happened
- CME FedWatch put the odds of an increase at the Fed's Sept. 16 meeting at nearly 90% after the report, up from 70% the previous day.
- EY-Parthenon moved its call from a hold to a quarter-point hike that would put the federal funds target range at 3.75% to 4%, the first increase since 2023.
- The August figures were collected before the recent fuel run-up that took oil above $100 a barrel.
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Why it matters
- decision A 2027 budget built on a falling funds rate has to be rebuilt around 4.25% to 4.50% by March if the December and March increases land. Those increases change when a refinancing is worth doing.
- exposure Fuel-indexed contracts and freight-heavy cost lines absorb this first, with pump prices already 27.4% above a year ago and diesel still climbing into September.
- constraint Three of twelve FOMC members dissented for a hike at the last meeting, so a divided committee caps how much weight any projected path past next Wednesday deserves.
- contradiction The print that flipped the forecasters predates the oil move they cite as their reason, so part of the case for hiking rests on prices no CPI release has measured yet.
EY-Parthenon's projected quarter-point increase would land the federal funds target at 3.75% to 4% [7]. The range today, then, is 3.50% to 3.75% [21]. Capital Economics expects a second quarter-point move in December and a third in March 2027 [11]. Run all three and the range at the end of the first quarter of 2027 is 4.25% to 4.50%, three quarters of a point above where it sits now [22]. A 2027 plan that assumed cheaper money is wrong by that much, in the wrong direction.
Gasoline drove a third of August's monthly increase, and pump prices are up 27.4% from a year earlier, according to the Labor Department [3]. The reading that moved forecasts is the one with gasoline stripped out. Core prices rose 0.3% from July, above expectations and up from 0.2% the month before [4]. CBS News reported that the acceleration suggests price pressure is broadening past energy as fuel costs move through the economy [5]. Nationwide chief economist Kathy Bostjancic said in an email Friday that "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" [14].
The near-90% probability is a one-day price. It rose 20 points in a day, from 70% on Thursday to nearly 90% after the report [6][23], and it can fall back just as fast. The committee is split: the Fed held rates steady at its last meeting with three of its 12 members dissenting in favor of an increase [16], and Fed governor Christopher Waller has indicated he would support a September hike if inflation makes no meaningful progress toward the 2% target [17]. Two forecasters changed their published calls on the same day, and a published call carries more commitment than a probability that reprices hourly. EY-Parthenon chief economist Greg Daco wrote in a Friday note, "We are changing our Fed call from a hold to a 25bps hike at the FOMC meeting next week" [8]. Daco added that some officials are likely to "argue in favor of a rate hike on the basis that the 'speed' of the disinflationary process is not satisfactory" [9].
August's figures were collected before the run-up that took oil above $100 a barrel [13]. Brent traded around $105 on Friday [19], and the national average for diesel, used across transportation, construction and agriculture, rose again this week [26]. Ukrainian drone strikes on Russian energy infrastructure have hampered Russia's refining and created a fuel shortfall [20]. CBS News reported that inflation is a full percentage point higher than before the conflict in the Middle East began at the end of February [18].
The channels this report names are household ones. A hike makes mortgages, credit cards and auto loans more expensive, and pays savers more on CDs and high-yield accounts [12]. CBS did not report an effect on commercial credit, so anyone sequencing capex or a refinancing gets a direction and a pace from this record: three quarter-point steps to March 2027 on Capital Economics' path [11][22], the first of them announced at 2 p.m. ET on Wednesday, Sept. 16 [10].
What to watch
- The Sept. 16 vote split, and whether any FOMC member dissents against a hike rather than for one.
- The next CPI print, the first to cover the period when Brent traded near $105 a barrel.
- Whether Capital Economics keeps its December call if fuel prices retreat before the next meeting.