Baker Market Update 2026-09-11

The summer season is fading and so too are hopes for a swift resolution to the U.S.-Iran conflict. The resumption of back and forth strikes along with renewed threats in the Red Sea and comments from President Trump suggesting the war could extend through November pushed crude prices back above $100 a barrel this week. This helped fuel a new surge in global borrowing costs that brought the benchmark 10-year Treasury yield to within striking distance of 5%. After the release of August inflation numbers this morning, the 10-year yield crested at 4.992% before pulling back to around 4.92% as of this writing.

Brent breached $107 a barrel on Thursday, the highest in nearly four months, as Iran threatened to escalate counterstrikes and Houthi forces advanced on Mokha, a key Red Sea port. Brent is now up more than 75% year-to-date. The surge has driven diesel prices in the U.S. toward $6 a gallon and pushed gasoline prices to a new Labor Day record. As of this morning, crude has pulled back toward $104 after the International Energy Agency cut its demand forecast, which offered some relief to fixed income markets and allowed equities to stabilize following four consecutive sessions of losses.

This morning’s Consumer Price Index (CPI) report topped forecasts, bolstering the case for the Fed to hike rates at its meeting next week. Overall consumer prices were up 3.4% from a year ago and 0.4% for the month. Gasoline alone accounted for more than a third of the monthly increase. The more telling number was core inflation, which strips out food and energy, and rose 0.3% for the month against an estimate of 0.2%, the largest monthly gain since April. Shelter costs, which had been subdued in recent months, also picked back up. Taken together, the report offered little evidence that underlying inflation is cooling.

As the last major data point the Fed will see before its September 15-16 meeting, a hotter-than-expected inflation reading makes it easier to justify raising rates next week, especially alongside stronger-than-expected jobs data in recent weeks and elevated PPI earlier this week. Futures markets have adjusted pricing accordingly. Fed funds futures now suggest a roughly 85% probability of a 25 bp rate hike next week and a decent probability of a second hike before year-end.

The Fed has held rates steady at each of its last five meetings, though three officials dissented in favor of a hike in July. Chair Warsh has been cautious about telegraphing his next move, but said recently the Fed would "have work to do" if it cannot be confident that underlying inflation is moving toward its objective clearly and at sufficient speed. After this week's data, that bar appears increasingly difficult to clear without action.

Have a great weekend!