Inflation Data Sets Stage for Crucial Fed Meeting

The September meeting of the Federal Reserve is shaping up to be a crucial moment for interest rates. The last major inflation reports before the meeting are due on Thursday and Friday, with the Producer Price Index (PPI) and Consumer Price Index (CPI) scheduled to be released at 8:30 a.m. Eastern.

The Cleveland Fed's inflation nowcast puts August headline CPI at 3.38% year over year and core CPI at 2.38%, while economists expect headline inflation to hold near 3.4% with core inflation easing to 2.4%. A clean print would give the Fed more room to wait, but a hot CPI number could lead to another quarter-point hike.

The labor market has not helped doves, with U.S. employers adding 162,000 jobs in August and unemployment staying at 4.1%. Average hourly earnings rose 3.1% from a year earlier, and the BLS revised June and July payrolls up by a combined 55,000 jobs.

Fed Chair Kevin Warsh has emphasized that inflation is still running above the 2% target, and the central bank's main focus should be on prices. He has been less willing to guide markets gently from meeting to meeting, making each data release more volatile.