Persistent above-target inflation, with core PCE at 3.3% and headline readings near 3.5% year-over-year amid energy supply shocks, remains the dominant factor shaping trader views on Federal Reserve policy. The FOMC has held the federal funds rate steady at 3.50-3.75% since early 2026, including a 9-3 decision in July with three dissents favoring a 25-basis-point hike, reflecting a divided committee under Chair Warsh. The labor market stays resilient, with unemployment at 4.1% in August and solid payroll gains, reducing near-term recession risks but limiting room for easing. Markets now assign a rising probability to a September 15-16 hike—the first since 2023—following mixed August data and ahead of the September 11 CPI release, though a Reuters poll shows most economists still expect no change through year-end.