Hotter-than-expected August inflation data has raised the odds that Federal Reserve Chairman Kevin Warsh will push through a rate hike at next week's meeting. Core prices rose more than forecast, gasoline and diesel costs are climbing on the Iran war's oil-supply shock, and Fed officials remain split on how to respond.
Core consumer prices, which strip out food and energy, rose 0.3% in August, more than economists expected. Headline inflation climbed 0.4% for the month, putting the annual rate at 3.4% — unchanged from July, according to Bureau of Labor Statistics data.
The report turns the Fed's Sept. 15-16 meeting into a defining test for Warsh, who must now decide whether to raise interest rates or risk looking like he isn't in control of the central bank he leads.
Warsh's warning against a divided Fed
Warsh has repeatedly cautioned that price pressures remain too high. According to CNBC: "Inflation is running above our 2 percent target." Warsh said in an Aug. 28 speech at Jackson Hole, adding that the Fed's focus should stay on prices even after recent improvements in the data.
Fed Governor Christopher Waller and New York Fed President John Williams, by contrast, entered the week more inclined to wait for further data before backing an increase. Waller said at a Sept. 3 event that he was watching Friday's report closely for signs inflation was cooling.
Treasury yields have already moved on the uncertainty: the 10-year yield climbed to 4.95% as of early Friday morning, a sharp rise since Warsh took over as chairman.
Energy shock adds to the pressure
The Iran war has restricted oil flows through the Strait of Hormuz, pushing global crude back above $100 a barrel this week for the first time since mid-May. Gasoline prices rose nearly 4% in August and more than 27% from a year earlier, averaging about $4.30 a gallon at the pump.
Diesel prices hit a record $6 a gallon on Friday. Thomas Ryan, a North America economist at Capital Economics, said the rise will raise transportation and farming costs that eventually flow through to higher food and goods prices.
Trading involves risk.
Risk Disclaimer
