Expectations for a September U.S. Rate Hike Strengthen After Core Inflation Exceeds Forecasts; Market Probability at 86.3%

[Financial News] Expectations that the Federal Reserve System (Fed) will raise its benchmark interest rate in September have strengthened after the United States’ core inflation rate exceeded market forecasts. Financial markets are pricing in an over 86% chance of a rate hike next week, while some analysts also expect the Fed to raise rates again later this year.
The United States’ August consumer price index (CPI), released on the 11th local time, rose 0.4% from the previous month and 3.4% from the same month a year earlier. Both figures were in line with expert forecasts. Core CPI increased 0.3% month on month, exceeding the forecast of 0.2%. Its year-on-year increase was recorded at 2.4%.
The higher-than-expected monthly increase in core inflation strengthened analysis that additional tightening is needed to curb inflation. This CPI report was the final inflation indicator released ahead of the Federal Open Market Committee (FOMC) meeting scheduled for the 15th and 16th. It has been viewed as a key variable that could influence the Fed’s policy decisions amid rising oil prices stemming from the U.S.–Iran war and continuing trade tensions.
After the inflation data were released, the interest-rate futures market quickly raised its pricing for a rate hike. According to CME FedWatch from the Chicago Mercantile Exchange (CME), the probability of a 0.25-percentage-point increase in the benchmark interest rate next week rose to 86.3% as of that afternoon. That was 13.9 percentage points higher than the previous day’s 72.4% and 26.9 percentage points above the 59.4% recorded a week earlier, on the 4th.
The Wall Street Journal reported that the Fed rarely ends a rate-hike cycle after just one increase once it begins raising rates. Since the 1990s, when the Federal funds rate began to be used as the central policy tool, 1997 has been the only year in which tightening ended after a single hike, the report said. Former Fed Vice Chair Richard H. Clarida also forecast, "If a rate hike takes place next week, it is highly likely to be followed by another hike."
[email protected] Choi Doo-sun Reporter