Will tonight’s CPI trigger a rate hike? #CPIWatch✨ . Let’s look at the data first: the probability of a September rate hike has risen to 71.3%, and a hike is almost “ready to be fired.”
August nonfarm payrolls came in at 162,000, far above the market expectation of 56,000—almost three times the forecast. The unemployment rate held at 4.1%, staying at a low level. The data for the first two months were revised up in total by 55,000.
UBS therefore officially overturned its prior prediction of “no change for the full year” and now expects the Federal Reserve to raise rates by 25 bps in both September and December. Citi and Macquarie have also adjusted their forecasts in sync, moving the first rate-hike timing forward from December to September. CME FedWatch shows that as of September 11, the market pricing probability for a 25-bps hike in September is already 71.3%, while the probability of keeping rates unchanged is only 28.8%.
But the “final blow” that truly determines whether there will be a hike is still CPI.
Bank of America has clearly stated that the jobs report is more like an “appetizer,” while the c CPI is the “main course” that will decide whether the Fed actually delivers a rate hike. At present, the market expects August CPI to rise 3.4% year over year, with core CPI up 0.2% month over month. The key point is this: some institutional analysis suggests that the core CPI month-over-month growth may need to fall below the 0.20% threshold in order to avoid a September hike. After the release of the PPI data, traders have fully priced in the expectation of a first rate hike no later than October.
My view is: unless core CPI month-over-month unexpectedly drops to below 0.19%, the Fed will most likely raise rates by 25 bps at its September 15–16 meeting.
Trading view: short gold in the near term but long for the long run—wait for the CPI data to land before setting up longs
I think September will see rates held steady, though it’s all just talk for now.
August nonfarm payrolls came in at 162,000, far above the market expectation of 56,000—almost three times the forecast. The unemployment rate held at 4.1%, staying at a low level. The data for the first two months were revised up in total by 55,000.
UBS therefore officially overturned its prior prediction of “no change for the full year” and now expects the Federal Reserve to raise rates by 25 bps in both September and December. Citi and Macquarie have also adjusted their forecasts in sync, moving the first rate-hike timing forward from December to September. CME FedWatch shows that as of September 11, the market pricing probability for a 25-bps hike in September is already 71.3%, while the probability of keeping rates unchanged is only 28.8%.
But the “final blow” that truly determines whether there will be a hike is still CPI.
Bank of America has clearly stated that the jobs report is more like an “appetizer,” while the c CPI is the “main course” that will decide whether the Fed actually delivers a rate hike. At present, the market expects August CPI to rise 3.4% year over year, with core CPI up 0.2% month over month. The key point is this: some institutional analysis suggests that the core CPI month-over-month growth may need to fall below the 0.20% threshold in order to avoid a September hike. After the release of the PPI data, traders have fully priced in the expectation of a first rate hike no later than October.
My view is: unless core CPI month-over-month unexpectedly drops to below 0.19%, the Fed will most likely raise rates by 25 bps at its September 15–16 meeting.
Trading view: short gold in the near term but long for the long run—wait for the CPI data to land before setting up longs
I think September will see rates held steady, though it’s all just talk for now.
