The U.S. Bureau of Labor Statistics (BLS), part of the U.S. Department of Labor, released the August Consumer Price Index (CPI) data at 3:30 p.m. Türkiye time. While the headline figures came in line with expectations, the monthly increase in core inflation exceeded expectations and sharply pushed up rate-hike pricing in the market.
The Numbers
Annual CPI came in at 3.4%, in line with expectations (unrounded 3.397%; previous 3.365% — indicating a slight upward acceleration). Monthly CPI met consensus at 0.4%, but this represents a sharp acceleration from the previous month; the monthly increase in July was only 0.1% (unrounded 0.396% versus 0.074%).
On the core side, the annual increase came in at 2.4%, in line with expectations and down from the previous 2.5%. However, the key figure was monthly core CPI: it came in at 0.3%, above the 0.2% expectation (unrounded 0.318%; previous 0.215%). In other words, beneath the headline “in-line” picture, there is a clear signal that underlying price pressures have accelerated.
Divergence in the Details: Housing Cools, Services and Energy Heat Up
The critical point in the data is where the acceleration in core inflation came from. Housing actually provided some relief: owners’ equivalent rent (OER) fell to 0.2% (previously 0.3%), while rent of primary residence also declined to 0.2% (previously 0.3%). As the traditionally stickiest component of inflation, cooling housing would normally be a dovish signal.
However, this relief was more than offset by the surge in services and energy. Supercore, which measures core services excluding housing, jumped 0.511% month-over-month, its highest level since January (previous 0.189%); annual Supercore also rose to 3.022% (previous 2.843%). This surge in Supercore, one of the measures the Fed watches most closely for underlying inflation, suggests that the core surprise was not temporary “goods-price” noise but rather persistent services-driven pressure.
Energy was the main component pushing the headline higher: it rose 2.1% month-over-month (previous -1.5%), while gasoline alone jumped 3.9% (previous -2.9%) and accounted for 0.140 percentage points of the 0.4% headline increase by itself. Based on the trajectory, this contribution is expected to be much higher in September. Other notable moves included lodging away from home at +2.4% (previous -2.8%), airline fares at +2.7%, and wireless telephone services at +5.9%, the largest increase on record. Meanwhile, apparel at 0.0%, medical care services at -0.2%, and motor vehicle insurance at -0.8% remained on the offsetting side; on an annual basis, motor vehicle insurance fell 5.1%, its lowest level since November 2020, while health insurance stood at -8.5%. Real weekly earnings were slightly positive at +0.2% (previously 0.0%, revised to +0.1%).
Markets Price in a Rate Hike: From 68% to 90%
Before the report, markets were pricing a 68% probability of a rate hike at the September meeting and 43.7 basis points of hikes for the full year; USD/JPY stood at 154.01. Following the data, the initial reaction was direct dollar buying due to the hot core reading. On CME FedWatch, the probability of a 25-basis-point hike at the September 15-16 meeting initially jumped to 82% and climbed toward 90% as the session progressed. The market is now largely pricing in rates moving from the 3.50%-3.75% range to 3.75%-4.00% as effectively certain.
The Waller Factor: “If It Comes in Hot, I’ll Consider a Hike”
Behind this sharp repricing are not only the figures themselves, but also the fact that undecided votes within the Fed had been closely focused on this data. Fed Governor Christopher Waller had drawn a clear line one week before the release: “If progress toward 2 continues, I would support holding rates at the current level; but if inflation comes in hot, I would consider a rate hike.” Waller also said that the current level of interest rates was only “mildly restrictive” for demand and that there might not need to be much acceleration to “push” him toward a hike.
The fact that core CPI, and especially Supercore, fit precisely into this definition of “hot” was interpreted as a development bringing undecided members such as Waller closer to the hawkish camp. Combined with Fed Chair Kevin Warsh’s message at Jackson Hole that “there has not been enough improvement in inflation, and we may have more work to do,” the rate-hike scenario has become the dominant one for markets.
What Could the Fed Do?
Two possibilities stand out at the meeting. The first, and now heavily priced scenario, is a 25-basis-point rate hike, likely balanced with a message that “this is not the beginning of a prolonged tightening campaign.” The second possibility is leaving rates unchanged while maintaining a “the fight against inflation is not over, we will move if necessary” tone — a “hawkish hold.” As a counterargument, Treasury Secretary Scott Bessent’s camp argues that current inflation is an energy-driven supply shock and that, according to conventional theory, rates should not be raised in response to a supply shock; however, the surge in Supercore while housing cools strengthens the hawkish argument that the pressure is not purely supply-driven.
Impact on Markets
Dollar: The rise in the rate-hike probability to 90% provides strong support for the dollar. The initial reaction was direct dollar buying, with USD/JPY extending its move above 154. Rising yields, combined with the ECB’s hawkish rate hike, could keep the DXY elevated in the short term.
Gold: Spot gold had fallen to a one-week low around $4,310 before the data amid pressure from rising yields and a stronger dollar. The hotter core reading and the 10-year Treasury yield approaching 5% represent short-term selling pressure for gold. Nevertheless, geopolitical risks such as tensions around the Strait of Hormuz and Brent trading above $108 continue to provide an offsetting factor by keeping safe-haven demand alive; if a hike takes place at the meeting and the Fed delivers a “one-and-done” message, a sharp rebound in gold remains on the table.
Stocks: Wall Street was already under pressure for a fourth consecutive day ahead of the data due to rising oil prices and Treasury yields. The near-certainty of a hike could intensify the reaction in rate-sensitive growth and technology stocks; if yields surge significantly, the impact would be more visible in Nasdaq-heavy indexes. Cooling housing inflation is the only positive medium-term nuance, but in the short term, the direction is being determined by rate expectations.
Crypto: Bitcoin and altcoins are among the most vulnerable segments in this environment. The rate-hike scenario, rising Treasury yields, and a strengthening dollar typically create a negative backdrop for crypto; the market, which is sensitive to risk appetite and dollar liquidity, is directly affected by weakening expectations for looser monetary policy. The acceleration in core and Supercore inflation pushes the early rate-cut scenario that the crypto market had been trying to price in even further into the future. Until the meeting, caution is warranted regarding volatility and sudden liquidations in leveraged positions.
In Summary
The August CPI was calm on the headline, but hot on core inflation and especially Supercore; that was the decisive factor for markets. While housing cooled, the prominence of services and energy pressures triggered Waller’s “if it comes in hot, I’ll hike” framework and pushed the rate-hike probability from 68% to 90%. All eyes are now on the FOMC decision on September 16; whether the Fed approves a 25-basis-point hike and the tone of its message will determine the direction of the dollar, gold, stocks, and crypto markets over the coming weeks.