August CPI Report Set to Tip Balance for September Interest Rate Decision
The upcoming Consumer Price Index (CPI) inflation report on Friday will be a crucial piece of data for the Federal Reserve ahead of its interest rate decision next week.
The Bureau of Labor Statistics is set to release the August CPI report at 8:30 am, which is expected to show a 0.4% increase in costs for all measured goods and services, putting the annual inflation rate at 3.4%. However, excluding food and energy prices, the core inflation outlook is more subdued at 0.2% and 2.4%, respectively.
Nomura economists note that the September Federal Open Market Committee (FOMC) decision hinges on the CPI data, as a majority of the Personal Consumption Expenditures (PCE) components are derived from it. While they currently maintain their 'no rate hike' call for next week, a surprise in the August CPI data could significantly increase the likelihood of policy firming.
Fed Chair Kevin Warsh has indicated a reliance on market indicators for direction on monetary policy. With traders already pricing in a quarter percentage point increase following Thursday's Producer Price Index (PPI) release, the stakes for Friday's report are even higher due to volatile energy prices and data-dependent expectations.