US CPI figures may determine Fed rate decision next week

The US consumer price index (CPI) figures for August will be published on Friday 11 September at 14:30. Inflation is expected to remain stable at 3.4% year on year, while core inflation falls slightly from 2.5% to 2.4%. The figures arrive at a sensitive moment: next Wednesday the Federal Reserve will make its interest rate decision, and the market is divided on the outcome.

In brief:

• The August CPI will be published on Friday at 14:30, with an expected annual change of 3.4%.
• The market is divided: roughly 40% expect a rate pause, 60% expect a rate hike.
• Higher than expected inflation increases pressure on the Fed to raise rates after all.

Market divided over rate move

Expectations for next Wednesday’s interest rate decision are strikingly divided. Roughly 40% of the market expects policy to remain unchanged, while 60% has priced in an increase. Today’s inflation figures could prove decisive in that, as was already noted earlier this week.

The month-on-month change in headline CPI is expected at 0.4%, up from 0.1% in the previous reading. Core inflation on a monthly basis is expected to remain stable at 0.2%.

Fed probably does not want to raise rates, but has little choice if inflation disappoints

Analyst DaanCrypto argues that the Fed would probably prefer not to raise rates, but that higher than expected inflation figures effectively force the central bank to act anyway in order to preserve its credibility.

He also points out that markets in uncertain periods, such as now, react far more sensitively to inflation and rate data than in calmer times. That makes today’s publication extra relevant for short-term price movements in financial markets.