Fed Rate Hike in September Almost Certain After August Inflation Report

The Federal Reserve is likely to increase interest rates in September, according to economists. The Consumer Price Index rose at an annual rate of 3.4% in August, matching July's reading but higher than the 3.3% forecasted by economists.

Core prices increased 0.3% from July, surpassing expectations and accelerating from the previous month's 0.2% rise. This suggests inflationary pressures are spreading beyond energy as higher fuel prices ripple through the economy.

The likelihood of a rate hike at the Fed's September 16 meeting jumped to nearly 90%, up from 70% on Thursday, according to CME FedWatch. EY-Parthenon projects the central bank will raise rates by 0.25 percentage points, bringing the federal funds rate to a target range of 3.75% to 4%. This would be the first rate hike since July 2023.

Some Fed officials are likely to argue in favor of a rate hike due to the 'speed' of the disinflationary process not being satisfactory, says EY-Parthenon chief economist Greg Daco. The Russia-Ukraine war and ongoing price pressures from the Iran conflict are also contributing factors to inflation.