Brent's $97 Surge Revives Fed Rate-Hike Bets Before CPI

A hawkish repricing is sweeping rate markets as crude's rally toward $100 collides with the last inflation data before the Federal Reserve's Sept. 16 decision, and bullion is absorbing the blow. Traders now assign a 60 percent probability to a quarter-point hike at that meeting, according to CME Group, a shift that has stripped gold of its haven bid even as Middle East fighting keeps oil supply constricted.

Goldman Sachs warned oil prices could reach $120 a barrel as U.S. fuel costs surge, a scenario that would deepen the inflation overshoot and complicate the Fed's calculus days before it sets policy.

Brent crude rose 0.6 percent to $97.54 a barrel Tuesday after briefly touching $99.46, up from roughly $72 in early July. The S&P 500 fell 0.4 percent, the Dow Jones Industrial Average dropped 575 points, or 1.1 percent, and the Nasdaq composite slipped 0.1 percent. The 10-year Treasury yield inched up to 4.79 percent from 4.78 percent, holding near its highest level since autumn 2023, while gold wilted as higher real yields eroded the metal's appeal as an inflation hedge.

The inflation prints arriving this week are the last before the Fed convenes. Thursday's report on wholesale prices is expected to show August inflation accelerated to 5.4 percent from 4.7 percent in July, and Friday's consumer-price index is seen easing only to 3.3 percent from 3.4 percent — still far above the central bank's 2 percent target.

Energy Costs Complicate the Disinflation Story

The oil shock threatens to reverse the disinflation progress that had underpinned expectations of a pause. Energy is a volatile slice of headline CPI, but a sustained move toward $100 — let alone Goldman's $120 scenario — feeds through to gasoline, freight and airline fares within weeks, lifting the near-term inflation path even as core goods prices cool. The last time Brent traded above $95 in a sustained stretch was 2022, when headline U.S. inflation ran above 8 percent and the Fed was in the middle of its fastest tightening cycle in four decades.

The political backdrop adds another layer. President Donald Trump has lobbied for lower interest rates, while Fed Chairman Kevin Warsh has said he wants to give markets fewer clues about the central bank's short-term plans. That combination leaves the committee navigating between an energy-driven inflation impulse and pressure from the White House, with Warsh's communication stance raising the risk of sharper market moves around the decision.

For gold, the repricing is direct. Higher policy rates lift the opportunity cost of holding the non-yielding metal, and the 10-year yield's climb toward 4.8 percent has already eroded the haven bid that oil-driven uncertainty might otherwise support. If Friday's CPI comes in hot and the Fed follows through with a hike, bullion faces further downside; a cooler print that keeps the committee on hold would restore some of gold's inflation-hedge appeal. The stakes extend beyond bullion: a hike would push borrowing costs higher for companies and households just as the oil bill is climbing, squeezing the consumer spending that has kept the expansion intact.

This article is for informational purposes only and does not constitute investment advice.