Fed Shifts Towards September Hike as Inflation and Oil Surge

The Federal Reserve's decision on a September rate hike has shifted decisively in favor of a quarter-point increase, now seen as a base case by markets.

This change comes after US headline inflation rose 0.4% in August and 3.4% from a year earlier, both in line with expectations.

The less comfortable part of the report came underneath the surface: core prices increased 0.3%, rather than the expected 0.2%, while annual core inflation eased from 2.5% to 2.4%.

The combination of a resilient labor market and another surge in energy costs has changed the calculation facing the Fed, with Goldman Sachs and JPMorgan now forecasting a September hike.