Fed on Hold as Subdued CPI Data Takes Center Stage
According to TD Securities economists Oscar Munoz and Eli Nir, the upcoming August Consumer Price Index (CPI) will likely be subdued enough to keep the Federal Reserve (Fed) on hold in September. The economists expect a modest reading of 0.18% month-over-month for core Personal Consumption Expenditures (PCE), which would be welcome news for centrist FOMC members like Governor Waller and Williams.
Munoz and Nir emphasize the importance of the August CPI report, citing Governor Waller's preference to pause rate hikes as long as data allows. However, they also caution that an upside inflation surprise could still trigger a rate hike.
The economists forecast that the Fed will remain on hold over their forecast horizon, with inflation expected to remain high for the rest of the year and the labor market stabilized, allowing the FOMC to shift focus to its inflation mandate. If the Fed were to move this year, Munoz and Nir believe a hike is more likely than a cut.