Traders spent this week repricing the Federal Reserve.
The implied probability of an interest rate increase at next Wednesday’s meeting climbed from roughly a coin flip to about 90% after back-to-back inflation reports left little room to argue that price pressures are fading.
Crude Above $100 Is Doing The Damage
Thursday’s producer price index showed initial signs of weakness, with the annual rate quickening to 5.4% from 4.8%.
Friday’s consumer price index held the headline rate at 3.4% year-over-year, but the details mattered more: core prices, which strip out food and energy, advanced 0.3% month-over-month, above forecasts of 0.2%.
Energy explains why those monthly readings keep running hot.
Gasoline alone accounted for more than a third of August’s increase in consumer prices, rising 3.9% for the month and 27.4% year over year.
West Texas Intermediate crude – as closely tracked by the United States Oil Fund (NYSE:USO) – pushed above $100 a barrel, its highest since July, after a fresh round of strikes around the Strait of Hormuz. Crude has now gained more than 70% in 2026.
The International Energy Agency deepened the squeeze Friday, removing another 1.4 million barrels per day from its 2026 global supply forecast.
The national average for regular gasoline reached $4.29 a gallon Friday, 15 cents higher than a week ago.
Diesel is the bigger problem. AAA pegged the national average at a record $6.06 a gallon Friday, the first print above $6 and 63% above where it sat a year ago.
Diesel sets the cost of moving freight, working farmland and running construction equipment, which is how an energy shock spreads into everything else.
The pain is now hitting consumers.
The University of Michigan’s preliminary September sentiment index sank to 47.8 from 51.7, missing expectations of 51.0 and marking the second-weakest reading in a survey that dates to the 1950s.
Consumers now expect prices to climb 4.6% over the next 12 months, up from 4.0% in August, with the five-year outlook edging down to 3.4%.
Survey Director Joanne Hsu pointed to fuel costs and renewed trade friction, noting that “consumers anticipate greater pressures on their pocketbooks to come.”
Long Bond Yields Revisit 2007
Bond markets absorbed the message. The 30-year Treasury yield reached 5.35%, a level last seen in May 2007, while the 10-year touched 4.96% and the 2-year moved above 4.5%.
A Treasury buyback meant to steady the long end landed with a thud Thursday, with the government repurchasing just $5.2 billion of bonds against a $6 billion cap.
Stocks Bounced Friday But Lost The Week
Equities fell four sessions running before rebounding Friday, when the major averages each added about 1.1% as crude retreated.
It was not enough to rescue the week: the Dow Jones Industrial Average was down roughly 1.8%, with the S&P 500 and Nasdaq 100 modestly lower.
Gold slipped about 1.3% over the five sessions despite Friday’s bounce to $4,375 an ounce.
Best S&P 500 Stocks This Week
Skyworks Solutions Inc. (NASDAQ:SWKS) topped the index with a 28.1% advance, its strongest week since 2009. Two catalysts stacked: the foldable iPhone Duo launch from Apple Inc. (NASDAQ:AAPL), which opens for pre-order Saturday, and CEO Phil Brace‘s comment at a Goldman Sachs conference that the chipmaker’s $22 billion all-stock merger with Qorvo Inc. (NASDAQ:QRVO) has entered its final stages and should close by year-end.
Hewlett Packard Enterprise Company (NYSE:HPE) rose 17.7% and Dell Technologies Inc. (NYSE:DELL) 14.6% as buyers worked through the AI server supply chain all week.
Corning Inc. (NYSE:GLW) gained 15.0% after unveiling a multi-year, multibillion-dollar agreement Tuesday to supply Verizon Communications Inc. (NYSE:VZ) with more than 80 million miles of optical fiber between 2027 and 2032, underwriting both broadband buildout and long-haul AI backbone capacity.
Image created using artificial intelligence via Midjourney.
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