Inflation report lands amid spiking oil prices, rising interest rates
and Fed on fence
[September 11, 2026] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — Friday's inflation report is shaping up to be among
the most consequential in years.
Oil and gas prices have spiked again on the back of renewed combat in
the Middle East. The Federal Reserve is considering whether to lift its
short-term interest rate next week, with some officials saying Friday's
report could swing them either way. And longer-term interest rates
jumped Thursday, partly because of fears of higher inflation, pushing
mortgage borrowing costs higher.
The Trump administration is seeking to counter voter concerns about high
prices and rising interest rates as the midterm elections approach.
President Donald Trump on Wednesday promised $5,000 payments to every
American adult if the GOP keeps a majority in Congress, a move that
would require congressional approval and could stoke inflation. And
Treasury Secretary Scott Bessent has stepped up buybacks of Treasury
bonds in an effort to keep longer-term interest rates lower. Yet on
Thursday the yield on the 10-year Treasury reached a nearly three-year
high.
What's coming Friday
On Friday, the government is expected to report that headline inflation
ticked down last month, to 3.3% from 3.4%, according to data provider
FactSet, though that is still above the Fed's 2% target. And higher gas
prices will likely push inflation back up next month when September's
data is released.
On a monthly basis, prices are forecast to have risen 0.4% from July to
August, a pace that if it continues would keep inflation far above 2%.
Excluding the volatile food and energy categories, core prices are
projected to have risen by just 0.2% from July to August and 2.4% last
month from a year earlier. The year-over-year figure would be down
slightly from 2.5% in July.
Yet the cooling in core prices may not sway the Fed or console many
consumers. Renewed fighting in the Middle East has pushed up energy
costs, with the nationwide average cost of a gallon of gas on Thursday
jumping 7% from a month ago to $4.28. Gas prices on Labor Day were at a
record high for that date, and diesel fuel prices have reached all-time
highs.
Inflation as one-time shock, or something more
Many economists and Federal Reserve officials have long considered
higher gas prices one of several “one-time” shocks that are lifting
inflation, along with tariffs and surging investment in AI data centers.
For months, the hope has been as that as the war against Iran wound
down, and the effects of tariffs faded, inflation would grind lower.
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 Yet there are few signs of the Iran
war cooling, and even Trump has said gas prices won't retreat until
after the midterm elections in November. And while Trump's trade
fight with Canada will impact a small number of imports, it is a
reminder that tariffs remain a threat that could push up other
costs.
“This is not one and done,” said Kathy Bostjancic,
chief economist at Nationwide. “It's unclear when tensions in the
Middle East are going to settle down. ... This seems like it could
be a prolonged disruption.”
While core prices are rising more slowly than overall prices, more
expensive oil and gas could spread through more of the economy.
Pricier jet fuel will likely push up air fares, and more expensive
diesel will raise shipping costs, which could make groceries and
other goods shipped by truck more expensive. On Thursday, a
wholesale price report showed a jump in chemical prices, likely a
result of more expensive oil.
What will the Federal Reserve do?
Federal Reserve policymakers are split on whether to hike at a
meeting next week, so much so that differences of a few hundredths
of a percentage point in Friday's inflation report could determine
whether the central bank boosts its benchmark interest rate or
leaves it unchanged. The Fed, which is tasked with keeping inflation
in check, typically lifts borrowing costs to slow spending and limit
price increases.
Investors and analysts differ over whether the Fed will hike rates
at their Sept. 15-16 meeting. Chair Kevin Warsh suggested he was
leaning toward a rate hike in a high-profile speech two weeks ago,
but he did not commit to doing so at a specific time.
And last Thursday, Fed governor Christopher Waller, echoing some
other Fed officials, suggested that if Friday’s inflation report
shows price increases cooling, then he would support keeping rates
where they are. Waller is one of the 12 officials who vote on each
Fed rate decision.
Waller's heavy emphasis on August's figures have raised the stakes
for Friday's report. If the monthly core figure rounds up to 0.3%,
some Wall Street analysts expect the Fed would then hike rates. But
if it rounded down to 0.2% or lower, then a hold could be more
likely. If it is somewhere in between, it's not clear what the Fed
may do. One analyst called such considerations “ludicrous
precision.”
For his part, Warsh doesn't want to tip his hand about his next
moves, which some economists say will make this kind of uncertainty
more common before Fed meetings.
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