U.S. consumer inflation picks up in August, bolstering case for Fed rate hike — SkimNews
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- U.S. CPI rose 0.4% in August after a 0.1% gain in July, driven by a gasoline price rebound, with year-on-year inflation at 3.4% — matching the 12-month gain in July.
- Core CPI climbed 0.3% month-on-month and 2.4% year-on-year, easing from 2.5% in July but still well above the Fed's 2% target.
- Financial markets priced a roughly 70% chance of a 25-basis-point rate hike at the Fed's Sept. 15-16 policy meeting, according to CME's FedWatch, with the benchmark overnight rate currently at 3.50%-3.75%.
- Fed Chair Kevin Warsh said last month the central bank will "have work to do" if policymakers don't gain confidence that inflation is heading toward the 2% target, reinforcing the hike case alongside Thursday's strong PPI report.
- President Trump pressured the Fed to cut rates via social media, posting "LOWER THE RATE OR I'LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT," with economists blaming political intimidation for the surge in long-term U.S. bond yields.
- Oil prices climbed back above $100/barrel while diesel hit record highs, and some economists flagged tariffs on imports — most recently against Canada — as a persistent source of price pressure that could keep inflation elevated.
- The August PCE report will include methodology changes that some economists estimate could lower the core inflation rate by a couple of basis points.
Why it matters: The Fed funds rate sits at 3.50%-3.75% with markets pricing a 70% chance of a 25bp hike on Sept. 15-16. Trump's threats to halt trading with deficit countries — blamed by economists for the bond yield surge — give the Fed a rare chance to hike in defiance of the president, underscoring independence while the data gives it cover.
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