The Federal Open Market Committee meets Tuesday and Wednesday, and futures markets have stopped treating the outcome as a question. By Friday afternoon, CME Group's FedWatch tool put the odds of a quarter-point increase at roughly 86% to 90%, up from 72% on Thursday and about 67% before the August inflation data landed.
If it happens, it will be the first rate increase of Chair Kevin Warsh's tenure and the first move of any kind in 2026. It will also arrive in the middle of the largest capital spending cycle in the history of American technology — financed, in substantial part, with debt.
Microsoft closed Friday at $495.63, up $3.19 or 0.65%, on 12.8 million shares, against a 52-week range of $349.20 to $553.72.
What the Fed is reacting to
August CPI rose 0.4% for the month and 3.4% over twelve months, both matching the Dow Jones consensus. Core CPI rose 0.3%, a tenth of a point above forecast and above the 0.2% median in Bloomberg's survey. The core annual rate was 2.4%.
August PPI, out Thursday, rose 0.4% monthly and 5.4% annually, up from 4.8% in July. Energy prices rose 4.2% on the month, accounting for more than three quarters of the increase in goods.
August payrolls came in at 162,000 with unemployment at 4.1% — a labor market giving the committee no reason to hold back.
Consumer sentiment fell to 47.8 in the University of Michigan's preliminary September reading, the second-lowest since 1952, with one-year inflation expectations jumping to 4.6% from 4.0%.
Brent crude finished the week 8.1% higher near $104, after touching a four-month high of $109.97 on Friday.
At Jackson Hole on August 28, Warsh said "the Fed's predominant focus right now should be on prices," and added that inflation needs to reach the 2% target "at sufficient speed." He also said of the summer's better-than-expected readings that they did not signal a meaningful improvement in the underlying trend. Inflation reached a three-year high of 4.2% in May. Those comments are what moved hike odds from 44.4% on August 7 to 60.6% by September 8, before this week's data pushed them near 90%.
"Overall, the report clears the path for the FOMC to hike next week — a move that we expect will be followed by at least an additional quarter-point by year end," said Ian Lyngen of BMO Capital Markets. "The price action in the Treasury market has been remarkably muted, all things considered. The front-end cheapened while duration has rallied in outright terms. Fed credibility is compressing forward inflation expectations."
"Friday's CPI print was in-line with expectations, but inflation is still too hot, and the Federal Reserve's hands are tied," said Skyler Weinand, chief investment officer at Regan Capital. "A rate hike next week is all but assured."
The bond market has already moved. The 10-year Treasury yield closed Friday at 4.969%, after touching 4.9915% immediately after the CPI release — its highest in almost three years. The two-year reached its highest level in more than two years, and the 30-year its highest in more than 19 years. The jobs data that started this repricing did most of the work before inflation confirmed it.
Why Microsoft is the stock to watch through it
The artificial intelligence build-out is the market's lead catalyst, and it runs on borrowed money and long-dated commitments. Higher policy rates raise the cost of both. Microsoft is the cleanest large-cap expression of that tension.
From its fiscal fourth-quarter report on July 29:
Net income of $35.77 billion, or $4.81 per share, up from $27.23 billion, or $3.65 per share, a year earlier.
Shares rose 8% in extended trading on the results and steady capital spending guidance.
A $3.2 billion gain from the company's stake in Anthropic, plus lower-than-expected costs tied to its first voluntary retirement program, and an impairment charge in the Xbox gaming business.
Capital expenditure plans for fiscal 2026 were left unchanged, with more spending planned for fiscal 2027. Chief financial officer Amy Hood said Microsoft expects to remain cash-flow positive in fiscal 2027.
Microsoft disclosed in January that roughly 45% of its $625 billion in commercial remaining performance obligations were tied to OpenAI. Deutsche Bank analysts, who recommend buying the stock, have flagged that as "some concentration risk," particularly as open-source models improve.
Beginning in fiscal 2027, Microsoft will collapse its three reporting segments — Productivity and Business Processes, Intelligent Cloud, and More Personal Computing — into two: "Agents and Infra" and "Devices and Consumer." Agents and Infra will hold the Microsoft Cloud, productivity and server licensing, and consulting and support. Devices and Consumer will hold Windows, Xbox and advertising.
"There's no question AI represents a profound shift in both technology and business," chief executive Satya Nadella wrote. "It is changing what we build and how we operate, and it is blurring the boundaries between our products and reshaping our business models."
Restructuring the income statement around agents is a statement of conviction. Raising rates into it is a test of the financing. The same question has trailed every large check written in this cycle, including the $12.9 billion Nvidia paid for a company that gives its software away.
Where the tape closed on Friday
The S&P 500 closed at 7,656.98, up 65.28 points or 0.86%. The Dow finished at 52,573.29, up 509.19 or 0.98%. The Nasdaq Composite ended at 26,333.04, up 251.31 or 0.96%. All three still finished the week lower; the S&P 500 had dropped 2.0% over four sessions through Thursday, its deepest four-day decline since June.
The CBOE Volatility Index fell 11.21% to 15.84. WTI crude for October delivery settled near $100.23, down 2.20%.
Selected closes: Kroger $58.49 (+2.70%) after cutting full-year sales guidance while holding its profit forecast, Adobe $252.23 (+1.37%), Exxon Mobil $165.99 (+0.46%), Chevron $214.06 (+0.61%), Nvidia $218.29 (−0.03%), Oracle $150.28 (−1.74%).
The week ahead
Monday: Canadian CPI for August, expected down 0.1% monthly and up 3.0% annually. Chinese aggregate financing and new yuan loans. Gulf Cooperation Council foreign ministers meet Iran's counterpart in Oman on Strait of Hormuz shipping.
Tuesday: U.S. retail sales for August at 8:30 a.m. ET, consensus a 0.8% monthly gain after a 0.4% decline in July. Chinese retail sales, industrial production and fixed asset investment. UK jobs and wages. German and EU ZEW sentiment.
Wednesday: Federal Reserve policy announcement and Chair Warsh's press conference. UK August inflation. Bank of Canada minutes.
Thursday: Bank of England decision. U.S. jobless claims, August housing starts and preliminary building permits.
Friday: Bank of Japan decision and Governor Ueda's press conference. Japanese and German inflation data, UK retail sales, U.S. industrial production. French sovereign rating reviews from two agencies on the same day.
Earnings: FedEx and Lennar.
Two things to watch beyond the decision itself. The first is whether Warsh's press conference framing matches the statement and projections — leadership transitions at the Fed have historically produced gaps between an established reaction function and new language. The second is the 10-year yield's proximity to 5%, a level that has not been breached since 2023 and that would reprice every long-duration asset in the market, starting with the ones spending the most on data centers.
This article is for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.
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