US Inflation Holds Steady at 3.4%, Fed Rate Hike Odds Rise to 85%

The US consumer price index (CPI) rose 0.4% in August 2026, keeping the annual rate at 3.4% for a second consecutive month. The Bureau of Labor Statistics published the monthly CPI release last Friday, which is the last major inflation reading before the Federal Open Market Committee meets on September 15 and 16.

The core CPI, which strips out food and energy, rose 0.3% on the month and 2.4% from a year earlier. This easing of core CPI from 2.5% in July 2026 may not be enough to deter the Federal Reserve from raising interest rates.

According to CME Group's FedWatch tool, the odds of a quarter-point increase to the federal funds target range have climbed to around 85%, up from about 70% before the release. Chris Zaccarelli, chief investment officer at Northlight Asset Management, said 'it's hard to see how the central bank can justify leaving rates on hold.'

The services sector pressure was more concerning for policymakers, with supercore inflation rising 0.5% on the month and 3% year over year. Shelter costs increased 0.3%, but moderated over the prior two months.