Fed Rate Hike Odds Climb to 70% After Hot PPI — SkimNews
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- Traders priced in about a 70% chance of a quarter-point Fed rate hike at the September 15-16 meeting, up from roughly 65% before Thursday's PPI release, based on CME Group Fed funds futures contracts.
- U.S. producer prices rose 5.4% year-over-year through August, in line with economist estimates, but PPI details showed inflation broadening — prices for transportation, warehousing, hospital services, and airfares all jumped that month.
- The Fed has held its policy rate in the 3.50%-3.75% range since December while inflation has run above the 2% target for 5-1/2 years; Capital Economics wrote the Fed 'seems likely to hike this year even if it doesn't pull the trigger this month.'
- Friday's consumer price index report is the remaining swing input for Fed officials debating whether current policy is restrictive enough, with analysts divided over whether PPI alone is enough to force a move next week.
- Market pricing implies the Fed will almost certainly deliver at least one rate hike by year-end and possibly two, regardless of whether the September meeting produces an immediate move.
- The European Central Bank raised its key interest rates earlier Thursday to combat inflation driven by Iran-war energy costs that pushed Brent crude above $100 a barrel — a parallel signal that central banks on both sides of the Atlantic are tightening into the same shock.
Why it matters: The shift from 65% to 70% on a single PPI print shows how thin the Fed's margin for patience has become — Friday's CPI could seal a September move that was a tail risk days ago. The ECB's parallel hike, explicitly tied to Iran-war energy costs, confirms central banks on both sides of the Atlantic are now tightening into an oil shock rather than the soft-landing scenario markets had been pricing through summer.
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