Escalating hostilities in the Middle East drove oil prices to $104 per barrel this week before settling back to $99 this morning, over 11% higher than a week ago.
https://tradingeconomics.com/commodity/crude-oil
This was the primary factor moving markets this week as higher energy prices triggered fears of inflation seeping into the general economy this month. However, according to the August inflation report released this morning, both the annual headline inflation rate as well as the core inflation rate held steady last month. Stocks rallied Friday morning on the news as many investors had feared a spike or a higher reading.
Rising inflation expectations continue to push bond yields higher and bond prices lower. According to Morningstar, the Bloomberg US Aggregate Bond Index is down -0.66% so far this year and has averaged -0.38% per year for the past 5 years.
At the heart of inflation fears is the effect of energy prices on the transportation of goods. Diesel fuel now costs more than $6 a gallon, up 60% from a year ago, and gasoline may top $5 a gallon this year.
https://www.cnn.com/2026/09/11/business/6-dollar-diesel-effects
https://oilprice.com/Energy/Energy-General/Jeff-Currie-Sees-5-Gasoline-Before-Midterms.html
As a result, it is becoming more likely the Fed will raise interest rates to slow the economy and take some pressure off prices. The probability of a 0.25% interest rate hike next week when the Fed meets is now 85% and the odds of 2 or more hikes by year-end is 69%.
Meanwhile, in southern California…
On a positive note, the Fed is confident the US economy is currently strong enough to handle higher interest rates to combat potentially higher inflation.
Have a great weekend.
Jack C. Harmon II, CFP®, CIMA
Principal, Harmon Financial Advisors
Registered Principal, Raymond James Financial Services
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