August CPI report released; Fed rate hike odds climb to 70%
In brief
- August CPI report released September 11 at 8:30 a.m. ET, the final inflation read before Fed's September 15-16 meeting.
- Headline CPI expected to rise 0.4% month-over-month from July's 0.1%, with core CPI up 0.2%.
- 25-basis-point rate hike probability stands at roughly 70%, with stronger inflation potentially pushing odds higher.
Inflation expectations ahead of the report
Economists had penciled in a 0.4% month-over-month increase in headline CPI, a sharp acceleration from July's 0.1% gain. On a year-over-year basis, that would place headline inflation somewhere in the 3.3% to 3.4% range, roughly in line with July's 3.4% annual reading.
Core CPI, which strips out food and energy, was expected to tick up 0.2% month-over-month, translating to a 2.4% year-over-year pace—actually a slight deceleration from July's 2.5% annual core reading. Energy prices had been a key wildcard. Average gasoline prices climbed to $4.192 per gallon in August, up from $4.064 in July.
Rate hike odds and market sensitivity
The probability of a 25-basis-point rate hike at the September 15-16 FOMC meeting has climbed to roughly 70%. A hotter-than-expected CPI print could push that probability even higher, potentially opening the door to more aggressive Fed action down the line.
Sectors most sensitive to interest rate movements, including real estate, utilities, and growth-oriented technology stocks, are particularly exposed. Higher rates increase borrowing costs and reduce the present value of future earnings—a structural headwind for any company that relies on cheap debt or whose valuation rests on distant cash flows. Treasury yields have already been creeping higher in anticipation of continued tightening.
The August print was the final major inflation signal the Fed would see before locking in its policy stance for September. Whether the data supported a pause or a hike, the market's repricing had already begun.
