The U.S. Federal Reserve is approaching a difficult policy decision, and today's August CPI report could become one of the most important pieces of information before the September 15–16 meeting.
The official Bureau of Labor Statistics schedule confirms that August CPI is due September 11 at 8:30 AM ET. The July CPI was up 3.4% year over year, while core CPI was up 2.5%.
But the inflation picture has become more complicated.
August nonfarm payrolls increased by 162,000, while unemployment remained at 4.1%. A stronger labor market gives the Fed less reason to worry about an immediate employment slowdown and leaves more attention on inflation.
Then came August PPI.
Producer prices increased 0.4% month over month and 5.4% over the year. Energy prices were a major contributor, while transportation, hospital services and other components also recorded increases.
That is why CPI matters so much today.
If CPI comes in hotter
A stronger-than-expected CPI could reinforce concerns that inflation is becoming persistent. That could push market expectations for a Fed hike higher, potentially supporting the dollar and Treasury yields while creating additional pressure on stocks and crypto.
If CPI comes in cooler
A softer CPI could reduce some of the pressure on the Fed and lower expectations for an immediate hike. If Treasury yields also fall, risk assets could receive relief.
But CPI alone does not guarantee a Fed hike or a Fed hold.
Markets were already pricing a significantly higher probability of a 25-basis-point hike after the PPI release. Reuters reported the probability at around 71% early Friday, compared with 61% previously. This is market pricing, not a decision from the Federal Reserve.
Crypto is already showing caution
Bitcoin was around $76.6K in the latest Reuters market update, while Ether was around $2.44K. Rising Treasury yields, a stronger dollar and higher oil prices have created a difficult environment for risk assets.
Oil is another variable traders cannot ignore. Brent crude recently moved above $100, adding another potential source of inflation pressure.
For crypto, I am watching BTC's reaction to the CPI number rather than trying to predict the number itself.
A hot CPI plus rising yields could put additional pressure on Bitcoin and high-beta altcoins.
A cooler CPI plus falling yields could give buyers an opportunity to regain control.
My take
Before CPI, I remain cautious rather than aggressively bullish or bearish.
The jobs report was strong. PPI showed renewed inflation pressure. Oil is elevated. Rate hike expectations have increased.
But the CPI number is still missing.
So my trading plan is simple:
CPI number → Treasury-yield reaction → BTC reaction → then consider the trade.
I don't want to chase a sudden candle immediately after the release. I want to see whether the initial move is confirmed.
A prediction can be wrong. A confirmed market reaction gives us something we can actually trade.
#CPIWatch