Traders see higher odds of Fed rate hike after upbeat producer price data
Following a rise in U.S. producer prices and steady jobless claims, market participants now estimate a roughly 70% chance that the Federal Reserve will raise its policy rate at the September meeting.
Traders have raised the probability of a quarter-point increase in the Federal Reserve's short-term borrowing costs at its September 15-16 meeting to about 70%, up from roughly 65% before the latest data. The shift follows the release of the producer price index, which showed a 5.4% year-over-year rise in wholesale prices for the 12 months through August.
The report indicated that while overall wholesale inflation matched economists' expectations, specific components such as transportation, warehousing, hospital services and airfares saw notable price jumps. Analysts linked these increases to renewed tensions in the Middle East affecting oil supplies and heightened demand for electronics driven by artificial-intelligence investment.
A consumer price index report due on Friday will provide additional context for the Fed's policy discussion, as officials assess whether current rates are sufficient to bring inflation back to the 2% target. The central bank has kept its policy rate in the 3.50%-3.75% range since December.
"With the PPI data overall still looking relatively hot, the Fed seems likely to hike this year even if it doesn't pull the trigger this month," Capital Economics analysts wrote.
"That still depends on the more important core CPI figure tomorrow," they added.
Market pricing of Fed funds futures suggests that at least one more rate increase is probable by year-end. Meanwhile, the European Central Bank lifted its key rate on Thursday in response to inflation pressures linked to the conflict in Iran, which has pushed Brent crude above $100 a barrel.