Fed Set to Hike Rates Amid Persistent Inflation and Strong Labor Market

The Federal Reserve's upcoming policy meeting on September 16-17 is expected to be one of its most closely watched this year, as inflation remains above the Fed's 2% target. The latest Consumer Price Index (CPI) data shows US consumer prices rose 0.4% in August from the previous month, taking annual CPI inflation to 3.4%, according to the Bureau of Labor Statistics.

Core CPI, which excludes volatile food and energy prices, rose 0.3% month-on-month, while the annual core inflation rate stood at 2.4%. The data suggest that inflationary pressures remain relatively broad-based, even as the Fed continues to aim for a 2% inflation rate.

The Producer Price Index (PPI) for final demand also rose 0.4% in August, while prices were up 5.4% from a year earlier. The labour market has provided the Fed with less reason to worry about a sharp economic slowdown, as US employers added 162,000 jobs in August, significantly above expectations.

Market expectations for a September rate hike have risen sharply following the latest inflation data, with the CME FedWatch Tool showing around a 90% probability of a rate hike. The decision is due on Wednesday, September 17.