US CPI rises over expectations, might lead to a hawkish Fed

Core CPI rose 0.2% in August which was as expected and a touch above the prior reading of +0.1%

The trouble is that the Fed's preferred inflation measure, Core PCE, has been trending downwards since the beginning of the year, slipping to +1.4% last month. Not only is this heading in the wrong direction but it is significantly below the US central bank's 2% inflation target. Back in July during her testimony in Washington, Janet Yellen made it clear that the Fed was playing very close attention to inflation, or the lack of it, when it came to setting monetary policy. She also suggested that the Fed was closer to its fed funds target than was estimated by the market. This led to a sharp reassessment on the timing of the next rate hike which has been pushed out to next June from December this year. This in turn continues to weigh on the dollar.

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