How will US inflation data affect the September Fed meeting?

Analyst Chat Talking Points:

• The US inflation rate is not coming down as fast as was expected.
• Markets are now fully pricing in the 75-bps rate hike at the September Federal Reserve meeting.
• US stocks have fallen sharply, while the US dollar has recovered almost all of its recent losses.

The August US CPI report had a significant impact on financial markets on Tuesday – the US dollar rose, gold prices fell and US stocks fell sharply.

Headline US inflation rose +0.1% m/m and +8.3% y/y, top forecast for no gains m/m and +8.1% y/y growth. Core readings were warmer than expected, coming in at +0.6% m/m versus +0.3% forecast, and y/y +6.3% versus +6.1% expected.

Markets are now discounting 100% chances of a 75-bps rate hike by the Federal Reserve next week. There is also a 20% chance of a 100-bps rate increase. This is a significant increase from a month ago, when there was less than a 50% chance of a 75-bps rate increase and a 100-bps rate hike with a 0% chance.

What does the August US inflation report mean for the September Federal Reserve rate decision? Senior strategists James Stanley and Christopher Vecchio, CFA discuss in this Tuesday’s DailyFX Analyst Chat.

— Written by James Stanley and Christopher Vecchio, CFA, Senior Strategists