Fed Rate Hike Expectations Skyrocket on Hot Inflation Reading

The Federal Reserve is likely to raise interest rates at its September 15-16 policy meeting following a hotter-than-expected core inflation reading in August. The Bureau of Labor Statistics reported that the consumer price index rose 0.4% in August from the prior month, placing the 12-month rate at 3.4%, unchanged from July.

The more closely watched core reading, which excludes food and energy, climbed 0.3% for the month, a tenth of a percentage point above economists' consensus forecast. The core annual rate held at 2.4%, well above the Fed's 2% target.

Energy and shelter costs drove headline inflation higher, with gasoline rising 3.9% in August and accounting for over one-third of the monthly all-items increase. Shelter costs added 0.3%, transportation services rose 0.5%, and used vehicles gained 0.4%, a broad-based advance that underscored the persistence of price pressures.

President Trump threatened to cut off trade with countries the US runs a deficit with, unless the Federal Reserve lowers interest rates. The August CPI print is the last major inflation reading the Fed will see before its September 15-16 FOMC vote.