FOMC on Collision Course as Inflation Estimates Reaccelerate

The Federal Reserve Bank of Cleveland's Inflation Nowcasting estimates suggest that inflation may be reaccelerating, particularly in core metrics. This could influence the FOMC's decision at its September meeting.

At the last FOMC meeting, three members dissented in favor of a rate hike, and Fed Chair Kevin Warsh made conflicting statements during his post-meeting press conference. The FOMC's September meeting is now considered a toss-up, with a nearly 55% likelihood of a quarter-point rate hike and roughly a 45% chance of holding rates steady.

The Cleveland Fed's Nowcasting estimates indicate rising monthly core CPI, potentially pushing hawkish members to advocate for tighter policy. Doves may argue that the increase is modest. The Bureau of Labor Statistics will release the July CPI data on August 12, which is expected to rise roughly 0.09% for the month and be up 3.42% year-over-year.

The FOMC's September meeting is Sept. 15-16, meaning the committee will receive all of the July data and the August CPI, which is expected to be published on Sept. 11. However, the August PCE report will not be published until after the Fed's meeting.