Market Expectation: Fed Must Hike Rates

The upcoming Federal Reserve meeting on September 16 has been put in a difficult position by recent data. The Consumer Price Index (CPI) report suggests the Fed should raise interest rates, which would align with other major central banks that have done so recently.

According to market expectations, there's an 80% chance of a 25 basis point hike. The European Central Bank raised rates this past week and is expected to do so again, while the Bank of Japan and Reserve Bank of Australia are also anticipated to increase interest rates.

The Fed's decision will put pressure on the dollar index, which has struggled even with stronger CPI data. If the Fed doesn't hike rates, it could lead to a loss of credibility and an increase in Treasury rates, potentially causing the long end of the curve to rise significantly.