US Core Inflation Sparks Rate Hike Fears Amid Busy Data Week
The US Federal Reserve may raise interest rates this week due to higher-than-expected core inflation. The August inflation report showed that core inflation eased to 2.4% from 2.5%, while the month-over-month (MM) core ticked up to 0.3% from 0.2%. This could bring the target rate to 3.75-4.00%, which President Trump has warned against.
Among 93 desks polled by Reuters, 65 expect the Fed to remain on hold, while 28 believe a hike is on the table. The gap between OIS and futures pricing suggests a coin toss, with the latter almost fully pricing in a rate hike (+22 bps).
A busy data slate awaits this week, including August Canadian CPI inflation data today at 12:30 pm GMT, UK jobs (Tuesday), inflation (Wednesday), the BoE decision (Thursday), and a BoJ policy decision on Friday. The market has moved sharply hawkish across the curve in just a week, largely on the back of Governor Tiff Macklem's commentary.
The Canadian CPI inflation report is expected to show that the YY headline number holds at 3% (max/min est. range between 3.2% and 3%), while the CPI median and trim measures remain unchanged at 2% and 1.9%, respectively. A confirming core print would extend recent hawkish pricing and bolster the CAD, but a miss may trigger a sharper unwind.