US Stocks Rally Friday as Inflation Data Boosts Fed Rate Hike Bets

US stocks climbed on Friday after the latest Consumer Price Index report showed inflation stayed elevated in August, reinforcing expectations that the Federal Reserve will raise interest rates next week. The Dow Jones Industrial Average and Nasdaq Composite each gained about 1%, while the S&P 500 rose 0.9%, snapping a four day losing streak. Despite the rebound, all three indexes ended the week lower.

Inflation Data Strengthens Rate Hike Expectations

Headline inflation rose 3.4% annually and 0.4% month over month, matching forecasts, while core inflation, which excludes food and energy, came in slightly hotter than expected at 0.3%. Traders now see an 87% probability of a Fed rate increase at next week’s meeting, sharply higher than earlier in the week. Treasury yields also ticked up, with the 10-year note approaching 5%.

Oil Prices and Pipeline Attack Add Pressure

Energy markets remained volatile after Saudi Arabia shut down its East West oil pipeline following attacks, briefly slowing a decline in crude prices. Diesel prices hit a record above $6 per gallon, while Brent crude held near $105 per barrel. Despite these pressures, all 11 S&P 500 sectors closed higher, led by the technology sector.