Hot Core Inflation Pushes Fed Hike Odds Toward 90%

Inflation ran hotter than expected where the Federal Reserve looks closest, and traders now put the odds of a rate increase next week near 90%. Oracle's cloud results lifted its stock, while oil finally pulled back from a week above $100 a barrel. Diesel did not follow it down, crossing $6 a gallon for the first time on record.

Fast Facts

• Kroger beat earnings estimates but cut its full-year same-store sales forecast to a range of 0.2% to 0.8%, from 1% to 2%, and the stock slid (Read More)
• A record $6.76 billion in quarterly revenue and more than 1 billion monthly active users were not enough for Adobe, whose shares fell after hours (Read More)
• Treasury Secretary Scott Bessent said "a large bank" will be sanctioned on Monday as part of the administration's Iran strategy (Read More)
• Sales of existing homes fell to their lowest level of the year even as the number of homes for sale climbed to a nearly seven-year high (Read More)
• OpenAI launched ChatGPT for Financial Services, a product aimed at the research, modeling and pitchbook work that junior Wall Street bankers have traditionally done (Read More)
• Federal bank regulators asked for public comment on new guidance for how banks manage the outside vendors they depend on (Read More)

Global News

• The United Arab Emirates pledged to invest 40 billion euros, about $46.4 billion, in Germany, with data centers a central part of the package and 10 billion euros earmarked for Bavaria (Read More)
• Saudi Arabia pumped 6.24 million barrels of oil a day last month, its lowest output in more than three decades and down from more than 10 million before the Iran war began (Read More)
• India's 10-year government bond yield topped 7% as the oil-driven selloff in global debt markets stretched into a fourth week (Read More)
• Beijing froze approvals for new energy-storage battery plants, citing worries about overcapacity and price wars in the sector (Read More)

August's Inflation Report Ran Hot Where The Fed Cares Most

The Bureau of Labor Statistics released the August consumer price index Friday morning, and the headline was exactly what economists expected: prices up 0.4% on the month, up 3.4% from a year earlier. Core CPI was the problem. That version of the index leaves out food and energy, the two categories that swing hardest month to month, and it rose 0.3% in August against forecasts of 0.2%. Annual core came in as forecast at 2.4%. Gasoline, up 3.9%, accounted for more than a third of the headline monthly rise. The Fed's target range for short-term rates has sat at 3.50% to 3.75% since a cut on Dec. 10, 2025.

On CME FedWatch, a market where traders bet on where the Fed will set rates, the implied odds of a quarter-point increase next week climbed from roughly 70% Thursday into the high 80s, near 90%. The 70% was what we wrote about yesterday, when oil alone was doing the work; the print has done the rest. Bonds had already moved. At Thursday's official close the 10-year Treasury yield was 4.95%, up 12 hundredths of a percentage point on the day, and the 2-year was 4.56%, up 13, both the highest since 2023. The S&P 500 fell 0.6% Thursday to 7,591.70, a fourth straight down day, but on Friday the Dow rose roughly 500 points intraday as oil pulled back.

A hot core reading argues for a hike even when the headline matches because the core measure is the Fed's attempt to see past noise: gasoline moves on wars and refinery outages, while core shows what inflation is doing underneath. Higher expected Fed rates then pull Treasury yields up, because nobody lends money for ten years at a rate below what they think short-term cash will pay along the way. Those yields are the floor under home loans. Freddie Mac's weekly survey, released Thursday, put the average 30-year fixed mortgage at 6.76%, up from 6.71% a week earlier.

Odds near 90% are a bet, not a decision, and the committee is split: it held rates 9-3 on July 29 with three officials dissenting in favor of a hike. CNBC's read is that this print puts Chair Kevin Warsh's credibility on the line, since he has spent months warning about inflation. Friday's mortgage headlines are a different series: the 7.07% behind the "crossed 7%" coverage comes from Mortgage News Daily's daily index, a separate and more volatile gauge than Freddie Mac's weekly average. As for the rally, The Wall Street Journal's framing is that investors like the idea of a Fed that tamps inflation down, which is not the same as liking higher rates.

Sources: CNBC on the CPI report · CNBC on Warsh's credibility · Quartz on the Dow's rally · WSJ live CPI coverage · Economic Times · U.S. Treasury · Freddie Mac · MarketWatch on the daily mortgage index · Rapunzl on yesterday's rise in hike odds · Rapunzl on the case for a September hold

Oracle's AI Backlog Reached $664 Billion And The Stock Jumped

Oracle reported results after Thursday's close for the first quarter of its fiscal 2027, the company's own 12-month accounting year, which runs ahead of the regular calendar. The line investors went to first was cloud infrastructure revenue: $7.39 billion, up 121% from $3.35 billion a year earlier, on demand for AI computing. Remaining performance obligations, the contracted work Oracle has signed but not yet delivered, reached $664 billion. The company booked more than $30 billion of new AI cloud contracts in the quarter. Oracle guided to at least $90 billion of revenue for fiscal 2027 and non-GAAP earnings, the company's own adjusted profit figure, of about $8.10 a share. Economic Times put the after-hours move, when shares change hands after the 4pm close, at roughly 4% Thursday, and the stock extended it Friday.

Oracle rents computing capacity to AI developers under multiyear contracts, which is why the backlog draws more attention than the quarter itself. Revenue says what Oracle delivered in three months; the backlog says what customers have already signed and agreed to pay for, the closest thing markets have to a measure of how much AI demand is contracted rather than announced. A backlog growing faster than revenue means customers are signing faster than Oracle can build. It also means Oracle builds the data centers first and collects later, which is why cash burn, the gap between cash going out and cash coming in, was the worry. The same report found that stronger-than-expected revenue and a smaller burn eased it.

A $664 billion backlog set against at least $90 billion of guided revenue for fiscal 2027 is more than seven years of company-wide sales already under contract. Those contracts pay out over many years and can change, so the ratio is a scale, not a schedule. MarketWatch reported analysts saying the quarter addressed the bear case, the argument for why the stock should fall, on several points.

Sources: Investing.com · CNBC · Economic Times · MarketWatch

Oil Pulled Back Friday, But Diesel Still Set Two Records

U.S. crude, known as WTI, fell sharply Friday after closing Thursday at $102.48 a barrel, up 6.7% on the day; Brent, the global benchmark, briefly topped $108 in Thursday trading, its highest since May. Both still ended the week up by a high single-digit to low double-digit percentage. Diesel got no relief, and set two records in two separate series. The Energy Information Administration's weekly on-highway average hit $5.967 a gallon for the week of September 7, beating the old record of $5.810 from June 2022; AAA's separate daily national average crossed $6 for the first time on Friday, at roughly $6.05. The International Energy Agency called the world's refining system "stretched to the limit" and cut its 2026 forecast, now seeing global oil supply falling by 5.7 million barrels a day this year. Houthi forces seized Mocha on Yemen's Red Sea coast, near the Bab el-Mandeb shipping chokepoint.

Diesel is the fuel that moves nearly all American freight, so a record diesel price raises the delivered cost of almost everything before it shows up anywhere else. The IEA warning is about capacity, not price: refining is the step that turns crude oil into usable fuels like gasoline and diesel, and a system already at its limit has no slack. A disruption at a chokepoint like Bab el-Mandeb can set off a fuel-specific spike that outlasts the crude move. Crude fell Friday. The $6 gallon of diesel, about 63% above a year ago, did not.

Sources: NPR on diesel · Axios on diesel · CNBC on oil pulling back · MarketWatch on oil and diesel · Quartz on the IEA · NPR on the Houthi advance · Rapunzl on yesterday's oil move

What To Watch

The week ahead belongs to the Federal Reserve. Policymakers meet Tuesday and Wednesday, Sept. 15-16, and Warsh holds a press conference at 2:30 p.m. ET on the 16th. After Friday's inflation report, traders are pricing a quarter-point increase as the likely outcome. How many officials dissent, and in which direction, should say as much about the path from here as the move itself.

Before that, the Fed releases its Z.1 Financial Accounts of the United States, a quarterly tally of household and business wealth and debt, at noon today. Which bank Treasury sanctions Monday under the administration's Iran strategy, and where it is based, is the detail to watch.

Earnings are quiet until midweek. Trip.com, the Chinese travel company, is expected to report after the close on Sept. 15; analysts' average estimate is $0.84 a share, down from $0.90 a year ago, and its outlook should show how pricier jet fuel is landing on Asian travel demand.

Across the Atlantic, the question is what the European Central Bank does after this week's increase to 2.50%; a Bundesbank official has said further hikes could be needed if energy prices stay elevated. And any new trouble along the Red Sea shipping lanes would land first in diesel and jet fuel prices.