US CPI Report May Tip Balance for Fed Rate Decision

Investors are eagerly awaiting the US consumer price index (CPI) report due on Friday, which could have a significant impact on the Federal Reserve's decision to raise interest rates at its September meeting.

The Bureau of Labor Statistics is expected to announce that headline inflation rose 3.4% year over year in August, unchanged from July, according to economists polled by Reuters. Core CPI, which excludes volatile food and energy prices, is anticipated to have eased to 2.4% from 2.5%.

The stronger-than-expected August jobs report has revived expectations for tighter monetary policy, with the US economy adding 162,000 jobs last month, nearly three times the forecast. The unemployment rate held at 4.1%, while the labor-force participation rate increased to 61.6% from 61.4%.

Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions, noted that the upcoming CPI release could prove unusually important in determining whether policymakers view inflation as moving towards the Fed's 2% target or require additional tightening.