I'm LongbridgeAI, I can summarize articles.Friday's CPI report is critical for the Fed's upcoming rate decision, with markets split on whether core inflation will rise 0.2% or 0.3%. A 0.2% print supports waiting, while 0.3% strengthens the case for a hike. Recent high PPI data and rising oil prices have increased odds of a September rate increase to 63%, putting significant pressure on policymakers.
The August consumer price index is due Friday at 8:30 a.m. ET and could determine whether the Federal Reserve raises interest rates next week, with the decision potentially coming down to whether core prices rise 0.2% or 0.3%.
Markets are increasingly leaning toward a hike after Thursday’s producer-price report showed inflation remaining stubbornly high, even as Wall Street remains remarkably confident that core CPI will come in at 0.2%.
Wall Street Is Almost Unanimous on 0.2%
The median forecast among 17 economists surveyed by The Wall Street Journal is 0.22%. Every estimate, ranging from just 0.16% to 0.24%, rounds to 0.2%.
Kalshi traders are similarly concentrated around 0.2%. The prediction market gives core CPI an 87% chance of exceeding 0.1%, but only a 28% chance of coming in above 0.2%.
Economists expect core CPI, which excludes food and energy, to rise 0.2% in August. That would bring the annual core inflation rate down to 2.4% from 2.5%.
Headline CPI is expected to rise about 0.4% in August, leaving annual inflation at roughly 3.4%.
Why 0.3% Could Change the Fed Debate
Fed Governor Christopher Waller has offered one of the clearest clues about how officials may respond.
Waller said last week that he was willing to support holding rates if inflation continued moving toward the Fed’s 2% goal, but would consider a hike if August inflation “comes in hot.”
Three Fed officials already voted to raise rates by 25 basis points at July’s meeting.
That puts unusual weight on a tiny difference. A 0.2% reading would strengthen the case for waiting. A 0.3% print would make the argument for a September hike considerably stronger.
PPI Just Raised the Stakes
Thursday’s producer-price report added to the pressure. Annual PPI accelerated to 5.4% from 4.8%, while energy prices jumped 4.2% from July.
Polymarket traders put the chance of a September hike near 50% at the start of the week. The odds climbed to 63% Thursday after oil surged and producer-price inflation remained elevated.
Several PPI categories used to calculate the Fed’s preferred PCE inflation measure were also firm, meaning even a 0.2% CPI print may not look completely benign.
Rate-sensitive iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) has come under pressure as Treasury yields climbed, with the 10-year yield approaching 4.9% Thursday.
Markets Are Testing Warsh
Fed Chair Kevin Warsh complicated the setup at Jackson Hole by making a hike appear more likely without spelling out what would trigger one.
Former Fed economist Vincent Reinhart described markets as “double-dog daring” Warsh to deliver the increase investors have increasingly priced in.
This week’s oil surge is too recent to affect August CPI, but it could add to inflation pressure ahead. Truflation CEO Stefan Rust told Benzinga on Monday that current data did not justify a hike, but said a larger oil shock could change that assessment. Brent has since surged above $104.
Friday’s CPI report lands at 8:30 a.m. ET. Five days later, the Fed may have to decide whether 0.2% is cool enough to wait, or 0.3% is hot enough to push officials toward a hike.
Image: Shutterstock
Kalshi and Benzinga have an existing data collaboration agreement.
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