Luther on infant baptism according to McGrath:

In a paradoxical way, infant baptism is totally consistent with the doctrine of justification by faith, because it emphasizes that faith is not something we can achieve, but something which is given to us graciously. . . . Baptism does not presuppose faith" rather, it generates faith. "A child becomes a believer if Christ in baptism speaks to him through the mouth of the one who baptizes, since it is his Word, his commandment, and his Word cannot be without fruit." Baptism effects what it signifies: "So we can see what a great and excellent thing Baptism is, in that it delivers us from the jaws of the devil and makes us God's own, suppresses and takes away sin, and then daily strengthens the new person, and is (and will always remain) efficacious until we pass from this state of ministry to eternal glory."

Wow ... that is not the understanding of salvation by grace alone I thought Luther had. Whatever happened to confessing and believing? Could it be that, as often happens, Luther was so concerned with protecting God and his understanding of Him that his "system" derailed him? This still happens today when people want to try to protect God and their understanding of God as love ... or when people want to try to protect God and their understanding of God as sovereign. When are we going to stop trying to protect God with our theological systems and allow His Word to speak for itself?

From: McGrath, Alister E. Reformation Thought: An Introduction, 4th ed. Malden, MA: Wiley-Blackwell, 2012. McGrath here cites Luther's Greater Catechism on Infant Baptism.