Fed Rate Hike Odds Skyrocket Amid Hot Inflation Data

A rate hike in September by the Federal Reserve is now considered likely after the release of hot inflation data, according to CME Fedwatch. The odds of a quarter-point rate hike on September 16 have risen to 85.4%, up from 72.4% yesterday and as low as 40% within the past two weeks.

Mike Shedlock, writing for Investing.com South Africa, notes that October rate hike odds are at 32.1%, making a double hike in September and October possible but unlikely due to political considerations ahead of the November midterm elections.

The Fed's decision will depend on the jobs report on Friday, September 4, which could provide further evidence for a rate hike. However, Shedlock expects Warsh to hike rates in September unless the jobs report is 'miserable' and the CPI is 'tame'. He also predicts fewer than four dissents.

Shedlock warns that delaying necessary policy tightening until December would allow hot inflation to fester for a full quarter, creating a reputational nightmare. A rate hike in September would create a political nightmare but avoid this reputational issue.