Happy CPI Friday – odds of September rate hike spike

CME FedWatch

U.S. inflation held at 3.4% in August, unchanged from July and in line with expectations. Core CPI came in at 2.4%.

The report pushed the probability of a Fed rate hike next week above 80%, as inflation remains well above the Fed’s 2% target.

The U.S. 10-Year Treasury yield slipped to 4.93%, while stocks rose approximately 1%, potentially suggesting investors are comfortable with the Fed tightening further to get inflation under control.

Combined with last week’s strong jobs report, I think the case for a September hike is pretty straightforward. Inflation is still too high, the labor market is holding up, and the Fed has room to act.