Inflation is creeping up, and Fed chair Kevin Warsh appears committed to getting it down to 2%.
Inflation is creeping up, and Fed chair Kevin Warsh appears committed to getting it down to 2%.
In September, the Federal Reserve raised interest rates for the first time since 2023. It didn't rattle the markets. In fact, many stocks continued to rally afterward, seemingly unshaken by the news.
However, things could go much differently if there's another rate hike around the corner, which many investors and analysts believe will happen, particularly with oil prices remaining high due to the ongoing war in Iran. According to the CME FedWatch Tool from the CME Group, the probability of a rate hike for the Dec. 9 Fed meeting is up to 90% right now. While the probability of a hike for the October meeting remains low at 17%, the market appears to be anticipating another rate hike before the year is over.
This could be incredibly problematic, as it could mean Fed chair Kevin Warsh is aggressively targeting inflation to bring it down to 2%. Unfortunately, with inflation remaining persistent, investors may be concerned about a repeat of 2022, when rising interest rates crushed the market -- the S&P 500 (^GSPC +0.41%) declined by more than 19% that year.
Inflation has been on the rise
Last week, the latest inflation numbers came out, and the news wasn't great. The annualized inflation rate, based on the Consumer Price Index (CPI), rose to 3.7% for September, up from 3.4% the previous month. Both the good news and the bad news are that the biggest factors were tied to the war in Iran, as fuel oil and gasoline had the largest year-over-year increases at 74% and 34%, respectively.
An end to the war could drastically improve the inflation picture. Unfortunately, it doesn't appear to be coming to an end anytime soon, and instead, things appear to be intensifying, with Iran preparing and bracing for a long war.
^SPX data by YCharts
Diversification could be key for investors
If there's another rate hike this year, that could be worrisome confirmation for investors that there will be more adversity to come in the markets, simply because of the potential for even more hikes in 2027 if inflation remains high.
Averytin News Financial update.