3 weeks ago
16
US inflation data boosted expectations for a Federal Reserve rate hike next week, with core consumer prices rising faster than expected and oil prices rebounding toward $100 a barrel.
Core CPI increased 0.3% in August, compared with economists’ expectations for a 0.2% rise. Core inflation was 2.4% over the year, matching forecasts and easing from 2.5% in July. Headline CPI rose 0.4% on the month and 3.4% annually, also in line with expectations.
The report followed Thursday’s producer-price data, which showed strong gains in several components used to estimate the Personal Consumption Expenditures indexes that the Fed uses for its 2% inflation target. A strong August jobs report also pushed rate-hike expectations higher.
CME FedWatch showed markets pricing in an 88% to 90% probability of a 25-basis-point rate increase at the September 15-16 meeting. The Fed’s benchmark overnight rate is currently at 3.50%-3.75%, meaning a quarter-point increase would take it to 3.75%-4.00%.
The stronger core reading could support Fed officials who have argued that inflation remains too broad to fall back to 2% without additional tightening. Fed Governor Christopher Waller has said he would favor holding rates if inflation continued to improve but would consider a hike if August data came in hot.
The outlook is further complicated by oil prices above $100 a barrel. Economists said the renewed energy shock, coming alongside tariffs and other recent supply disruptions, could keep inflation elevated and make it more difficult for the Fed to ignore higher energy prices.
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