The Fed still has little control over the 2 biggest inflation drivers

Wednesday morning's inflation data put a late-October Fed hike squarely on the table, raising the chances of a hike from around 22% to 54%, according to the CME's Fed futures market.

Surging gas prices have been a particular pain for consumers, and they were the major driver for September's price acceleration from August and the 3.7% year-over-year inflation reading.

That expensive oil, coupled with the expensive AI data center build-outs, has delivered the highest year-over-year figure since 2023.

While the Fed often favors "core" inflation readings, which exclude volatile food and energy prices to better show the overall economic picture, expensive gas and diesel have been around long enough that they're now baked into the prices of everything else.

Plus, as former Chair Jerome Powell would consistently note , families can't strip out food and energy costs.

Even before Wednesday's hot inflation data, we've been hearing from Fed officials who see higher rates as necessary to chill the economy, so it's not surprising to see markets shift their predictions.

But as ING economist James Knightley wrote in a note to clients, "rate hikes will have limited impact on these two price drivers."

"In terms of the outlook for inflation, much hinges on what happens with the Strait of Hormuz," Knightley added.

The ball, Knightley notes, is out of the Fed's hands, given that it has no foreign policy control and its high rates are no match for hyperscaler enthusiasm.

But the ING economist did give us all something else to watch, something that's already working in ways the Fed might want to cool the economy: flagging wages.

With almost no labor market turnover, wage growth is in the dumps at just 3% — less than inflation, we might add.

"The key story ... is wage growth, which is the biggest cost input for corporate America," Knightley noted.

While the low levels are "bad news for households," he added, "this will help to dampen price pressures over the medium to longer term."

Thursday's retail sales reading and wholesale price inflation gauge may not move the needle, meaning that we may be set to go into another Fed meeting on the edge of our seats, yet again.

Ethan Wolff-Mann is a Senior Editor at Yahoo Finance, running newsletters. Follow him on X @ewolffmann .