Subdued CPI Report Could Keep Fed on Hold in September

TD Securities economists Oscar Munoz and Eli Nir believe that the upcoming August Consumer Price Index (CPI) report will be subdued, which would keep the Federal Reserve (Fed) on hold in September. This is due to Governor Waller's preference for pausing rate hikes as long as inflation data permits.

Munoz and Nir expect CPI to come in lower than expected, with core PCE likely increasing by a modest 0.18% month-over-month, while market-based data would show an even more subdued 0.13%. This would be welcome news for centrist members of the Federal Open Market Committee (FOMC), such as Waller and Williams.

The economists also point out that inflation is expected to remain high for the rest of the year, while the labor market has stabilized, allowing the FOMC to shift focus to its inflation mandate. If the Fed were to move this year, a rate hike is more likely than a cut.