US Inflation Data Boosts Bets on Federal Reserve Rate Hike
The latest US inflation data has led traders to raise their bets on a Federal Reserve rate hike at next week's meeting. The Producer Price Index rose 5.4% in the 12 months through August, and while overall wholesale price growth was in line with economists' forecasts, some components of the index point to a possible resurgence in inflationary pressure.
The disruptions to global oil supplies caused by renewed tensions in the Middle East and increased demand for electronics amid rapid expansion in artificial intelligence investment have contributed to higher prices. Transportation and warehousing services became noticeably more expensive in August, while prices for hospital services and air travel also increased.
A report on the Consumer Price Index due tomorrow will be crucial to the Federal Reserve's future decisions, helping determine whether current monetary policy is restraining inflation sufficiently to bring it back to the 2% target. The analysts at Capital Economics note that the decision on whether to raise rates next week will depend largely on the more important core Consumer Price Index.
Federal funds futures prices indicate that the Federal Reserve is almost certain to raise rates at least once by the end of the year, with market expectations for a 0.25-percentage-point rate hike at the September 15-16 meeting rising from approximately 65% to nearly 70%