Market odds of a Federal Reserve rate hike next week jumped to 90% after August's core inflation report came in hotter than expected. The surprise print lands alongside a fresh run-up in oil prices and mounting political pressure on Fed Chair Kevin Warsh, sharpening the case for tighter policy at next week's meeting.
Core Consumer Price Index climbed 0.3% month-over-month in August, overshooting the 0.2% economists had penciled in, and the CME FedWatch tool responded almost instantly: the odds of a 25-basis-point hike at the September 16 FOMC meeting jumped to 90%, up from roughly 70% a day earlier. On a year-over-year basis, core CPI held at 2.4%, while headline CPI rose 0.4% month-over-month and 3.4% year-over-year.
Core inflation breaks its cooling streak
The pickup ended a three-month run of softer core readings. Non-housing services posted their strongest monthly gain since January, rising 0.6% month-over-month versus 0.2% in July, even as the three-month annualized core rate eased to a slightly softer 2.0%, underscoring the stickiness of inflation in that component.
Oil surge and political pressure raise the stakes
The report also landed amid a fresh spike in energy costs. Brent crude surpassed $100 a barrel this week for the first time since July, driven by the conflict in the Middle East, where Iran-backed Houthi rebels captured a key Red Sea port that threatens shipping through the Bab al-Mandeb Strait. As a result, Warsh faces mounting pressure to raise the interest rate even as President Trump has repeatedly demanded lower borrowing costs. According to the Financial Times: "A Fed rate hike next week now looks like a go", said Krishna Guha at Evercore ISI, though he added the move remained subject to residual uncertainties.
What a hike would mean for the target range
The Fed's current target range sits at 3.50% to 3.75%; a 25-basis-point hike next week would move it to 3.75% to 4.00%. At the Fed's July meeting, officials held rates steady in that range, but three of the twelve voters broke with the majority to back a quarter-point rise. Futures markets are now reflecting an increasing likelihood of one to two additional rate hikes before year-end, beyond next week's meeting.
The Fed's preferred inflation gauge, personal consumption expenditures, sat at 3.7% in July, above its 2% target for more than five years.
Sources: Crypto Briefing, Financial Times, ActionForex
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