The Fed Is On The Watch

The Fed Is On The Watch

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  • The core consumer price index (CPI), excluding food and energy costs, rose by 0.3% in August, the first increase since February. Over the past year, it increased by 4.3%, aligning with expectations, representing the smallest rise in nearly two years. Economists consider the core CPI a better indicator of underlying inflation. The overall CPI, including energy, rose by 0.6%, primarily due to higher energy prices, with gasoline costs contributing significantly to the increase. This report raises concerns that the economy's renewed momentum could lead to rising price pressures, potentially prompting the Federal Reserve to raise interest rates further.

  • The Fed is expected to keep rates steady in its upcoming meeting, but Chair Jerome Powell has indicated that rates may rise if inflation persists. Treasury yields and stock futures fluctuated, with expectations for a November rate hike at about 50%, according to recent reports. The CPI increase was driven by higher costs for rent, air travel, and motor-vehicle insurance, while new-car prices rose for the first time in five months.

Why it matters

Housing costs, a significant component of the CPI, increased by 0.3%, the smallest gain in over a year, partly due to lower hotel prices. A moderation in housing costs is essential for sustained core inflation reduction. The CPI is one of the last major reports Fed officials will take into account before their meeting next week, and monetary policymakers are largely expected to keep interest rates steady.


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