US August CPI Holds at 3.4%, Boosting Fed Rate Hike Odds to 90%
Elevated inflation data keeps the Fed on track for another rate hike, while consumer sentiment missed forecasts and Middle East tensions rattled markets.
U.S. inflation stayed stubbornly elevated in August, keeping the Federal Reserve firmly on a tightening path as traders pushed the odds of a 25-basis-point rate hike next week to nearly 90%, according to Fed funds futures pricing on Friday. The Consumer Price Index climbed 0.4% month-over-month — more than double July's 0.1% gain — while the annual headline rate held steady at 3.4%, matching expectations but offering little comfort to policymakers hoping for a decisive cooldown.
Gasoline prices were a primary culprit, surging 3.9% in August and accounting for more than one-third of the monthly headline increase. Core CPI, which strips out volatile food and energy costs, rose 0.3% for the month and 2.4% year-over-year — figures that signal underlying price pressures remain persistent even as energy swings dominate the top-line number. JPMorgan, responding to the data, revised its forecast to call for Fed rate hikes in both September and December.
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Market crosscurrents defined the North American session. U.S. equities staged a sharp rebound after four straight sessions of losses, a recovery that came despite — or partly because of — a notable pullback in crude oil prices. That oil reversal arrived even as fresh attacks on Saudi Arabian energy infrastructure rattled commodity traders and Iran-backed Houthi forces reportedly completed a takeover of the strategically critical Bab el-Mandeb Strait, raising fresh concerns about global energy supply routes.
Consumer confidence data added another layer of concern. The University of Michigan's preliminary September sentiment index came in at 47.8, well below the 51.0 consensus estimate, suggesting American households are growing more anxious about the economic outlook even as equity markets attempt to stabilize. On the fiscal side, the U.S. August federal budget deficit clocked in at $167 billion, dramatically smaller than the $404 billion analysts had projected.
With expectations for a September hike running so high, analysts warn the Fed risks a significant credibility loss if it fails to act at its upcoming meeting. Continue reading at Forexlive.
