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How Will US Inflation Data Impact the September Fed Meeting?

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Analyst Chat Talking Points:

  • US inflation rates aren’t coming down as fast as anticipated.
  • Markets are now fully pricing in a 75-bps rate hike at the September Federal Reserve meeting.
  • US stocks have sank rapidly, while the US Dollar has clawed back nearly all of its recent losses.

The August US CPI report had a significant impact on financial markets this week – the US Dollar soared, gold prices slumped, and US stocks sank rapidly.

Headline US inflation increased +0.1% m/m and +8.3% y/y, topping forecasts of no gain m/m and an +8.1% y/y increase. The core reading was hotter than expected as well, coming in at +0.6% m/m versus a forecast of +0.3%, and the y/y was at +6.3% versus +6.1% expected.

Markets are now discounting a 100% chance of a 75-bps rate hike by the Federal Reserve next week. There is also a 35% chance of a 100-bps rate hike. This is a significant increase from a month ago, when there was less than a 50% chance of a 75-bps rate hike and a 0% chance of a 100-bps rate hike.

What does the August US inflation report mean for the September Federal Reserve rate decision? Senior Strategists James Stanley and Christopher Vecchio, CFA discuss in the DailyFX Analyst Chat from Tuesday.

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— Written by James Stanley and Christopher Vecchio, CFA, Senior Strategists

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