Hot August CPI Report Could Spark Fed Rate Hike

The US Consumer Price Index (CPI) report for August is due out on Friday, September 11 at 8:30ET. Traders and economists are projecting a headline CPI reading of +0.4% month-over-month (m/m), which would translate to 3.4% year-over-year (y/y). Core CPI, which excludes food and energy prices, is expected to rise by +0.2% m/m or more.

A core CPI reading that rounds to 0.3% m/m or even an unrounded reading above 0.20% would signal that inflation is not slowing sufficiently, and a Fed rate hike may be necessary next week. This is according to FOMC member Christopher Waller, who stated that a cooler CPI would make him inclined to hold rates, while a hot reading could lead him to support a hike.

The technical setup in the US Dollar Index (DXY) hints at a turn higher, especially if the CPI report comes in hotter than anticipated. The DXY has been testing 98.50 support and is showing early signs of a potential near-term bottom. A hot reading would likely prompt the FOMC to raise interest rates next week.