Federal Reserve Expected to Hike Rates Amid Persistent US Inflation

Commerzbank economists are warning that US inflation remains high and will likely prompt the Federal Reserve to raise interest rates this week. The August CPI data, while in line with expectations, still show excessive underlying price pressure, according to Commerzbank.

The core inflation rate, which excludes energy and food prices, came in at 0.3%, exceeding forecasts. This suggests that the Fed's previous signals of readiness to hike rates were accurate.

Commerzbank now expects a 25bp increase in the Fed Funds target range at Wednesday's meeting, with futures pricing further tightening into 2027. The probability of a 25bp hike has increased to 88%, up from 62% last Monday.