US Inflation Holds Steady, Sparking Rate Hike Expectations
The US inflation rate remains stubbornly high, prompting renewed expectations of a Federal Reserve interest rate hike.
According to recent data, August's Consumer Price Index (CPI) rose by 0.4% month-on-month and 3.4% year-over-year, meeting market consensus. However, the core inflation index, which excludes food and energy prices, increased by a hotter-than-expected 0.290% month-over-month.
This outcome has reinforced market expectations of Fed policy tightening next week, with Fed funds futures contracts implying an 85% chance of a 25-basis-point rate hike. The core inflation index needs to trend towards 0.17% month-over-month to bring the year-on-year inflation rate down to the Fed's target of 2%.
Economist Kevin Warsh warned that inflation has been above target for too long in an environment where the economy is at full employment and financial conditions aren't restrictive, suggesting a decent majority of FOMC members will back a hike.