The CPI (Consumer Price Index) data for August was released yesterday and showed that inflation came in hotter than expected. Markets plummeted on the news as a result.
Inflation came in at 8.3% for August (year over year). This was a slight decrease from the previous month due to falling energy costs, but still came in hotter than the 8.0% expected.
This puts even more pressure on the Fed now to raise rates by at least another .75 next week. There was already an 85% chance of a .75 hike and this now makes it even more likely. There’s now a 23% chance of the Fed getting even more aggressive and raising rates by 1.00.
Goldman Sachs already raised the expectations for November from a .25 to a .50 hike. Inflation coming in this hot again means we are likely going to see another .75 hike in November if something significant doesn’t change in the next few months, and possibly December as well.
I would expect the Fed to continue to raise rates by at least .75 each time they meet until we see a significant reduction in inflation and likely continue to see significant rate hikes as long as inflation is above 7%.
The next Federal Reserve meeting is scheduled to take place on September 20th.
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