US Inflation Data Supports Almost Certain Fed Rate Hike This Week

The US inflation data for August showed a rise of 0.3% month-over-month (m/m), beating consensus expectations, and core inflation rose to 2.4% year-over-year (y/y) from 2.5%, sustaining the disinflationary trend.

The stronger-than-expected jobs report for August also supported a rate hike by the Federal Reserve this week. However, the annual core inflation rate eased, indicating that the Fed may only implement one-off rate hikes and not start a cycle of multiple hikes.

Bond and FX markets were relatively muted in response to the data, while the S&P500 index jumped 0.9%. The US 2-year yield rose by 4 basis points (bps) to 4.63% as markets factored in almost a 90% chance of a rate hike this week.