It’s getting late in the game. Will the Fed risk a Hail Mary? -CNN | Jewelry Dukan

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Investors are nervous as the Federal Reserve prepares for its monetary policy decision next week. Some are even beginning to brace themselves for a big surprise.

What’s happening: New inflation data Tuesday showed prices aren’t falling as quickly as Wall Street had hoped. Markets plummeted as the report fueled fears that the central bank and Chair Jerome Powell would decide to hike rates more aggressively, causing serious economic pain.

Tuesday’s alarming inflation report was the last before Federal Reserve officials convened for their next decision on interest rates, and it signaled to markets that the Fed won’t be taking its feet off the accelerator in its fight for moderate rate hikes anytime soon.

According to CME FedWatch data, investors put the probability of a three-quarters point hike over the next week at 75%. But some financial giants have begun discussing a scenario in which the Fed will hike rates by a full percentage point for the first time in its modern history.

The odds of a full point hike hover around 25% after the inflation report, up from 0% a week ago. Economists at brokerage house Nomura Securities changed their forecast from 75 basis points to 100 basis points.

Larry Summers, former Treasury secretary and Harvard president emeritus, wrote on Twitter that he doesn’t think gradual rate hikes have helped bring down high prices. The Fed has hiked rates four times this year and inflation remains near 40-year highs.

Markets might even surprise on the upside if reassured that the Fed is taking inflation seriously, Summers said. It is better to take an approach that involves tearing off the patch. He added, “I would choose a move of 100 basis points to add credibility.”

But markets often don’t take interest rate hikes well, which can hurt earnings and stock prices.

A one percentage point increase would also push the federal funds rate into what the Fed sees as a hawkish zone — where it says economic growth is tending to slow and unemployment rates are tending to rise. That limits the Fed’s chances of a soft landing, the Goldilocks situation, where the Fed cools the economy enough to bring down inflation but not enough to trigger a recession.

Still, some economists think shocking markets is a good thing, and at least one Fed official agrees.

Minneapolis Fed President Neel Kashari said last month he was happy markets had eased after Powell warned of imminent pain. It means people understood the seriousness of the Fed’s commitment to bring inflation rates back to 2%, he said.

The Fed wants “a weaker stock market. They want higher bond yields,” Bill Dudley, former New York Federal Reserve Chairman, told my colleague Matt Egan last month. “The stock market, I think, finally understood that.”

Higher bond yields, lower stock prices and widening credit spreads that make it more expensive for companies with weaker balance sheets to borrow are necessary to tighten funding conditions.

Conclusion: The US Federal Reserve is unlikely to hike rates by a full percentage point next week. The consensus among economists and Wall Street analysts is still for a 75 basis point hike, and Powell is happy to communicate and prepare markets for changes.

But that doesn’t mean there isn’t a major hike coming up at the November meeting.

“I wouldn’t discount a 100 basis point rate hike,” Marvin Loh, chief strategist at State Street, told me. “Just a few months ago, an increase of 50 basis points seemed unthinkable.”

Unions and management reached a tentative agreement early Thursday that averted a rail freight strike that threatened to cripple US supply chains and push up prices on many commodities.

The deal, with the unions representing more than 50,000 engineers and conductors, was announced just after 5 a.m. ET in a statement from the White House, which called it “an important win for our economy and the American people.”

It came after 20 hours of talks between union leaders and railroad negotiators, moderated by Labor Secretary Marty Walsh. They began their Wednesday morning meeting with a strike scheduled to begin Friday at 12:01 am ET.

Note this section: The agreement does not mean that the risk of strikes has completely disappeared. The deal must be ratified by union members.

But it’s good news for a variety of businesses that depend on rail freight to continue operating, and for the US economy as a whole. About 30% of the country’s freight traffic is transported by rail.

Few details of the deal have been released so far. But President Joe Biden’s statement showed that the major problem that had brought the country within a day of its first national rail strike in 30 years had been addressed in favor of unions.

“It’s a win for tens of thousands of railroad workers who have worked tirelessly throughout the pandemic to ensure America’s families and communities receive supplies of what has kept us going through these difficult years,” Biden said in his statement. “These railroad workers will get better pay, better working conditions and peace of mind about their healthcare costs: all hard-earned.”

Ethereum, the second most valuable cryptocurrency in the world, has completed a massive software upgrade that its supporters claim will reduce its carbon footprint.

The Latest: The long-awaited overhaul known as “The Merge” will reduce Ethereum’s energy consumption by nearly 99.95%, according to the Ethereum Foundation, a nonprofit organization dedicated to supporting cryptocurrency and related technologies prescribed.

Previously, both Ethereum and Bitcoin ran on a mechanism called “proof-of-work,” which required high-performance computers to solve complex puzzles. The merger is moving Ethereum to a mechanism called “proof-of-stake,” which is much more energy-efficient, reports my CNN Business colleague Diksha Madhok.

“Happy merging,” Vitalik Buterin, the 28-year-old Russian-Canadian programmer who helped found Ethereum, said on Twitter. “This is a big moment for the Ethereum ecosystem. Everyone who helped bring about the merger should be very proud today.”

The co-founder said the upgrade “will reduce global electricity consumption by 0.2%.”

While cryptocurrencies have enjoyed a phenomenal rise in recent years, observers say they are bad for the environment. According to Digiconomist, a single Ethereum transaction is equivalent to the weekly electricity consumption of an average US household.

Investor Insight: Ethereum is down more than 1% in the last 24 hours. But analysts believe it could boost adoption over the long term, especially for investors trying to align their portfolios with broader environmental goals.

Adobe (ADBE) reports earnings after the bell.

Also today: US retail sales for August arrive at 8:30am ET. Industrial production data follows at 9:15 am ET.

Coming tomorrow: A first look at the University of Michigan consumer sentiment survey for September.

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