Persistent inflation above the Federal Reserve’s 2% target, with core PCE near 3.3% and recent core CPI prints exceeding expectations, remains the dominant driver behind the 88.5% market-implied probability of at least one federal funds rate hike in 2026. A resilient labor market featuring unemployment around 4.1% and solid payroll gains has reinforced this view, while incoming Chair Kevin Warsh’s hawkish signals at Jackson Hole and in subsequent communications have shifted the FOMC toward tightening. Markets now price an 85-100% chance of a 25-basis-point increase at the September 15-16 meeting, with further moves possible in December, reflecting trader consensus that policy must respond to sticky price pressures rather than await clearer disinflation. Key near-term catalysts include the next CPI and PCE releases plus the FOMC statement itself.