đșđžđ US Inflation Puts the Federal Reserve Back Under Pressure
US inflation is once again putting pressure on the Federal Reserve ahead of this weekâs policy meeting. August CPI rose 0.40% month over month and 3.40% year over year, broadly in line with expectations on the headline measure. But core CPI increased 0.29%, above the 0.20% consensus forecast.
The biggest surprise came from services. The so-called supercore inflation accelerated to 0.51%, its strongest monthly increase since January, reinforcing concerns that the disinflation process may be losing momentum.
Energy is adding another complication. Oil has moved back above $100 a barrel, while gasoline prices jumped 3.9% in August and 27.4% over the past year. Even with a more benign PCE nowcast, markets are assigning close to a 90% probability of a 25-basis-point rate hike, which would take the federal funds target range to 3.75%-4.00%.
With a September hike largely priced in, the key question is no longer the decision itself, but what Kevin Warsh signals about the months ahead.
The Treasury market is reflecting that uncertainty. A rate hike could paradoxically help stabilize longer-term Treasury yields by reinforcing the Fedâs credibility in fighting inflation. An unexpected hold, by contrast, could be interpreted as complacency and keep long-term yields under pressure, particularly with the 10-year Treasury note once again approaching 5%.
The Fed is also operating under intense political pressure, with Donald Trump calling for the United States to have the lowest interest rates in the world, while the White House says it respects Warshâs independence.
For investors, the real challenge is now clear: can the Fed contain inflation without imposing excessive pressure on economic activity?
If it succeeds, markets may finally be able to shift their attention back toward corporate earnings and structural growth drivers â particularly the enormous expansion of artificial intelligence.
US inflation is once again putting pressure on the Federal Reserve ahead of this weekâs policy meeting. August CPI rose 0.40% month over month and 3.40% year over year, broadly in line with expectations on the headline measure. But core CPI increased 0.29%, above the 0.20% consensus forecast.
The biggest surprise came from services. The so-called supercore inflation accelerated to 0.51%, its strongest monthly increase since January, reinforcing concerns that the disinflation process may be losing momentum.
Energy is adding another complication. Oil has moved back above $100 a barrel, while gasoline prices jumped 3.9% in August and 27.4% over the past year. Even with a more benign PCE nowcast, markets are assigning close to a 90% probability of a 25-basis-point rate hike, which would take the federal funds target range to 3.75%-4.00%.
With a September hike largely priced in, the key question is no longer the decision itself, but what Kevin Warsh signals about the months ahead.
The Treasury market is reflecting that uncertainty. A rate hike could paradoxically help stabilize longer-term Treasury yields by reinforcing the Fedâs credibility in fighting inflation. An unexpected hold, by contrast, could be interpreted as complacency and keep long-term yields under pressure, particularly with the 10-year Treasury note once again approaching 5%.
The Fed is also operating under intense political pressure, with Donald Trump calling for the United States to have the lowest interest rates in the world, while the White House says it respects Warshâs independence.
For investors, the real challenge is now clear: can the Fed contain inflation without imposing excessive pressure on economic activity?
If it succeeds, markets may finally be able to shift their attention back toward corporate earnings and structural growth drivers â particularly the enormous expansion of artificial intelligence.