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