Inflation held at 3.4%, gas is up 27% in a year, and the Fed is now expected to hike on Wednesday. What that means for a three fund portfolio.

The Bureau of Labor Statistics published the August Consumer Price Index this morning, Friday, September 11. Headline inflation rose 0.4 percent for the month, after 0.1 percent in July, and 3.4 percent over the last twelve months, the same annual pace as July. Core inflation, which strips out food and energy, rose 0.3 percent for the month and 2.4 percent for the year, down a hair from 2.5 percent (Source). Economists had penciled in 3.3 percent on the headline and 0.2 percent on monthly core, so both came in a tenth hot (Source).

It is the gas pump

One line item explains most of this report. Gasoline rose 3.9 percent in August alone and is up 27.4 percent from a year ago. Energy overall rose 2.1 percent for the month and 16.3 percent for the year. The BLS says gasoline accounted for more than a third of the total monthly increase. CBS puts the national average at $4.30 for regular and $6.06 for diesel as of this week and ties the run up to the war with Iran. Airline fares, which follow jet fuel, rose 2.7 percent in the month and 23.4 percent over the year.

Outside energy, the picture is calmer than the headline. Food rose 0.1 percent for the month and 2.7 percent for the year. Shelter, the biggest single component of the index, rose 0.3 percent and 3.0 percent, which is close to where it was before the pandemic. Motor vehicle insurance actually fell 0.8 percent in the month, medical care fell 0.2 percent, and used cars are down 2.3 percent from a year ago. Apparel was flat for the month. So the 2.4 percent core number is the fair read of what the economy itself is doing, and 3.4 percent is what you feel at the pump.

Why the market read "hike"

The Federal Open Market Committee meets Wednesday, September 16. Going into this morning, futures markets put the odds of a rate increase at about 70 percent. By mid morning that was roughly 90 percent by CBS's count and 85.6 percent by TheStreet's, and either way it would be the first hike in more than three years. The 10 year Treasury yield ticked up to 4.959 percent, a 52 week high. Stocks, oddly, rallied, the S&P 500 was up about 1 percent at midday after four straight down days, because a hot but expected number is clarity, and markets pay for clarity (Source). Those index figures are intraday as I write, not closes.

The quote of the day came from Skyler Weinand at Regan Capital: "A rate hike next week is all but assured. Consumer prices are going in the wrong direction, and remain significantly higher than the Fed's 2 percent target." Goldman Sachs Asset Management's Alexandra Wilson-Elizondo made the more uncomfortable point, that the data "does not fully capture some of the inflation pressures that have emerged more recently," meaning September's number may not be better.

Here is the tension the Fed has to sit with. The part of inflation that is running hot is energy, and a rate hike does nothing about the price of oil. The part a rate hike can influence, services and shelter, is at 2.4 percent core and drifting down. So the argument for hiking is not that it fixes this report. It is that it keeps a 27 percent gas increase from leaking into wages and rents and everything else over the next year. That is a judgment call, and it is the one Chair Warsh's committee will make Wednesday. I wrote about how this Fed thinks back in June.

What it means if you hold VTI, VXUS, and BND

I hold exactly those three, so this is the part I actually care about. A recap of how the pieces behave, not advice on what you should do.

BND is the one people worry about when yields rise, and the worry is correct in the short run: when the 10 year goes from 4.6 to 4.96 percent, the price of a bond fund drops. The part people forget is that the fund is buying new bonds at the higher yield every month, so the income it throws off goes up, and over the fund's average duration that higher income catches up with and passes the price hit. A bond fund you hold for longer than its duration is helped by higher rates, not hurt. The pain is front loaded and the benefit is back loaded, which is exactly why it feels bad today.

VTI rallied on this news, which tells you the stock market is not scared of one hike. What it is watching is whether energy inflation turns into a broad slowdown, and today's report does not show that yet. Core at 2.4 percent, shelter at 3.0 percent, and insurance falling is not a recession print. It is a gas price print.

VXUS is the quiet beneficiary of a stronger dollar reversing, if a hike pulls money into US bonds, the dollar tends to firm, and that is a mild headwind for international returns measured in dollars. Mild. Over any period long enough to matter, the difference between VTI and VXUS is driven by earnings, not by a quarter point.

What I am doing: buying on the same schedule I was buying on last month, in the same three funds, in the same proportions. I have said it before and this report is a good reason to say it again, time in the market beats timing the market, and a Fed meeting is the most heavily timed event there is. If I sold BND every time yields jumped I would have missed every recovery in it since I started. If you are the kind of person who wants to see the income side of this instead of just the price side, that is the whole reason I built Holdwise, it tracks dividends and yield by account so a red day in the price column is not the only number you see.

What to watch Wednesday

Three things. Whether the hike is 25 basis points or larger. Whether the statement blames energy specifically, which would signal a one and done, or talks about broadening pressures, which would not. And the dot plot, because a committee that hikes once and projects flat is a very different message from one that hikes and projects two more. I will write it up after the press conference.

Figures come from the Bureau of Labor Statistics' August 2026 CPI release, CBS News, and TheStreet's market coverage on September 11, 2026, linked inline. Market figures quoted are intraday, not closing. This is a recap, not investment advice. I hold VTI, VXUS, and BND and this report does not change that. Verified September 11, 2026. My apps, including the dividend tracker mentioned above, are at jcmobileappstudio.com/apps.