August CPI data expected to shape Fed's September rate decision
The U.S. Labor Department will release the August consumer price index on Friday, and analysts say the figures could influence whether the Federal Reserve holds or raises rates at its September meeting.
The Bureau of Labor Statistics is set to publish the August consumer price index at 8:30 a.m. on Friday, providing the Federal Reserve with its final inflation reading before the September policy meeting. Market consensus projects a 0.4% monthly rise in overall prices, translating to a 3.4% year-over-year rate, while core inflation—excluding food and energy—is expected to show a 0.2% monthly increase and a 2.4% annual pace.
Combined with Thursday's producer price index, the CPI will help gauge the trajectory of the personal consumption expenditures price index, the Fed’s primary inflation metric, due later in September. Traders currently price a more than 73% chance of a 0.25 percentage-point rate hike, according to the CME Group’s FedWatch tool.
Nomura economists noted that “the September FOMC decision ultimately hinges on the CPI data … since a majority of PCE components are derived from CPI,” and they maintain a forecast of no rate increase unless the data surprise on the upside.
Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, said “September’s surge in energy prices will likely tip the balance towards a hike when the Fed meets next week,” adding that an unexpected CPI reading or geopolitical developments could still affect the outcome.