Inflation Lands Wednesday. Markets Are Betting on a Hike.

On Wednesday morning, the government will tell Americans what they already feel at the checkout line. And this time, the number could decide whether borrowing gets more expensive before Christmas.

The Bureau of Labor Statistics releases the September consumer price index on Wednesday, Oct. 14. Forecasts compiled by market sites put headline inflation at about 3.6% to 3.7% over the past year, up from 3.4% in August. Those are forecasts, not results, and the actual number may differ.

What markets are betting

Traders are not waiting. Market sites citing the CME Group's FedWatch tool put the odds of a Federal Reserve rate increase by the December meeting at roughly 70% to 85% in recent days, depending on the source. The odds of a hike at the Fed's Oct. 27-28 meeting were much lower, around 18% to 19%. Those readings move every day, and they are bets, not decisions.

The backdrop explains the nerves. The Fed raised its target range a quarter point to 3.75% to 4.00% in September. Minutes of that meeting, released Oct. 7, showed most officials judged another increase would likely be appropriate by year-end. Meanwhile the economy added just 29,000 jobs in September, far below forecasts. Gasoline averaged $4.36 a gallon on Oct. 8, and diesel $6.32 on Oct. 6, according to AAA data.

The take

This is the worst combination in economics, and Americans are living in it: prices still climbing, hiring slowing down. Economists call it stagflation risk. Families call it a bad month.

The Fed is right to take inflation seriously. Inflation is a tax nobody voted for. It hits retirees on fixed incomes, young families trying to buy a first home, and workers whose raises never quite catch up. A central bank that blinks on inflation, the way it did in 2021 when officials called it "transitory," loses the trust it needs to do its job. If the numbers stay hot, a December hike may be the responsible move.

But Washington should be honest about what rate hikes can and cannot fix. Much of the current pain comes from energy. Diesel has jumped about 70% in a year, by AAA's figures, and the president has blamed Ukrainian drone strikes on Russian refineries for driving it up, though analysts also point to the war with Iran and disrupted tanker traffic through the Strait of Hormuz. The Fed cannot drill a well or end a war. Higher rates will cool demand, and that means fewer jobs, at a time when hiring is already weak.

That is why the energy side of this fight matters so much. The administration's push to stop attacks on refineries, and to get more fuel into the market, goes at one major driver of prices. American production goes at it too. Every barrel produced here is one we do not have to beg for abroad. And Congress could help by doing the one thing it never does: stop adding to the deficits that keep pushing inflation higher.

For readers, the practical advice is simple. If Wednesday's number comes in hot, assume that credit cards, car loans and adjustable-rate mortgages will not get cheaper this year. Pay down variable-rate debt where you can. If you are thinking about locking a fixed rate, the trend in market odds is not your friend.

Wednesday's report will not settle everything. But it will tell the Fed, and every family with a budget, whether this autumn's price squeeze is easing or getting worse.