Fed Rate Hike Chances Rise as August Inflation Report Exceeds Expectations
The US Consumer Price Index (CPI) for August has come in as expected, rising 0.4% on a seasonally adjusted basis, and 3.4% over the last 12 months. However, core inflation, which excludes food and energy prices, rose 0.29%, hotter than the 0.2% monthly increase forecasted.
The three-month annualized rate of core CPI was 2%, while the six-month annualized rate rose to 2.6%. The Federal Reserve is considering whether to raise interest rates next week, with some officials indicating that reining in price pressures remains their primary focus.
Market expectations suggest a strong probability of a Fed rate hike, with traders now seeing around a 90% chance, up from about 70% before the inflation report. The CPI report is one of the most consequential in years, given the recent spike in oil and gas prices due to renewed conflict in the Middle East.
As a result, the Federal Reserve may need to 'have work to do' if inflation doesn't fade, as Fed Chairman Kevin Warsh indicated at a speech last month. This could lead to a rate hike next week, which would be a significant move for the economy.