Today (Oct. 14) marks another important stepping stone for Wall Street, investors, and the Federal Reserve. At 08:30 a.m. ET, the Bureau of Labor Statistics will publish the September inflation report. In addition to being the final puzzle piece to calculate Social Security's 2027 cost-of-living adjustment, this inflation report should play an important role in formulating the central bank's monetary policy.

To date, the evolution of artificial intelligence (AI) has catapulted the Dow Jones Industrial Average (DJINDICES:^DJI), S&P 500 (SNPINDEX:^GSPC), and Nasdaq Composite (NASDAQINDEX:^IXIC) to several record highs. But sweeping persistently elevated inflation under the rug is becoming nearly impossible, thanks to Trumpflation (inflation derived from President Donald Trump's policies), among other factors.

The odds of an aggressive Fed rate-hiking cycle are rising

The next Federal Open Market Committee (FOMC) meeting is two weeks away. According to the CME Group's (NASDAQ:CME) proprietary FedWatch Tool, which uses 30-day Fed Funds futures prices to track the probability of changes to the federal funds target rate, the odds of a rate hike on Oct. 28 have plummeted to just 17% as of Oct. 9.

But this doesn't mean FOMC policymakers are anywhere close to accomplishing their goal of delivering price stability.

The September-released Summary of Economic Projections, commonly known as the "dot plot," showed that 16 of 18 policymakers (not all of whom vote) forecast another rate hike before the end of this year.

JUST IN: The Federal Reserve did it. The Fed hiked interest rates a quarter point to 3.75 to 4%. This is the highest interest rate since late 2025. The vote was unanimous (12 to 0) The statement says: “Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2 percent goal. The Committee will deliver price stability.” ***Big news = The “Dot Plot” forecasts 1 more hike this year and then a lot of uncertainty for 2027 (most anticipating rates the same or lower next year).

— Heather Long (@byHeatherLong) September 16, 2026

Meanwhile, the CME's FedWatch Tool projects a high likelihood of several rate hikes by Sept. 15, 2027. There's less than a 6% chance of the federal funds target rate remaining unchanged or rising by 25 basis points (bps) to 4.00%-4.25% over the next 11 months. By comparison, there's a:

• 20.5% chance rates rise by 50 bps (4.25%-4.50%)
• 34.4% chance rates rise by 75 bps (4.50%-4.75%)
• 26.6% chance rates rise by 100 bps (4.75%-5.00%)
• 10.5% chance rates rise by 125 bps (5.00%-5.25%)
• 2.4% chance rates rise by 150-175 bps (5.25%-5.75%)

In other words, the odds of the Fed getting more aggressive are rising, and entrenched Trumpflation is mostly to blame.

Trumpflation is evolving and entrenched in the U.S. economy

To be clear, Trump's policies are far from the only source of inflation. It's perfectly normal for prices to rise in an expanding economy.

We're also seeing clear evidence of the AI infrastructure build-out increasing consumer prices and boosting the prevailing inflation rate. But it's Trumpflation that's most directly impacting consumers' wallets.

President Trump's tariffs have been increasing prices on consumer goods for more than a year. Though tariffs are designed to protect American jobs, encourage domestic manufacturing, and make U.S. goods more price-competitive with those brought in from foreign markets, they're an imperfect tool. Adding duties to unfinished goods can increase production costs, which are then passed on to consumers.

New from the New York Fed: "By February 2026, tariffs had contributed 2.9 pp to goods price inflation, and without them goods prices would have fallen slightly." About one quarter of every point in higher tariff rates shows up in consumer prices within one year. • A 10% across-the-board tariff yields a 2.6% rise in consumer goods prices after one year. • About two thirds of the increase comes from pricier imports, which get passed through quickly. • Another third comes from U.S. made goods, as producers face higher input costs and less import competition. This takes longer, about 6-12 months, to filter through.

— Nick Timiraos (@NickTimiraos) October 6, 2026

The Trump-led Iran war is having an even bigger impact on prices. The ongoing closure of the Strait of Hormuz has led to the largest energy supply disruption in modern history, sending fuel prices soaring. Furthermore, evidence is mounting that the inflationary effects of the Iran war have spilled beyond the energy sector into the broader economy.

The longer Trumpflation persists, the more damaging it could be to Wall Street's AI-driven bull market. If higher lending costs slow the AI infrastructure build-out, even marginally, it may be game over for the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.

Disclaimer:This article represents the opinion of the author only. It does not represent the opinion of Webull, nor should it be viewed as an indication that Webull either agrees with or confirms the truthfulness or accuracy of the information. It should not be considered as investment advice from Webull or anyone else, nor should it be used as the basis of any investment decision.