Federal Reserve: Inflation keeps pressure on – Commerzbank

Commerzbank economists note that August US CPI data were broadly in line with expectations but still too high for the Federal Reserve. They stress excessive underlying price pressure and say the Fed has already signaled readiness to hike. The team now expects a 25bp increase in the Fed Funds target range at Wednesday’s meeting, with futures pricing further tightening into 2027.

CPI supports further tightening bias

"US August headline and core CPI inflation were broadly in line with expectations but hot enough to strengthen expectations for a Fed rate hike this Wednesday."

"The Fed funds futures increased the probability of a 25bp hike by the Fed this week to 88%, compared to 62% last Monday. They are pricing in a total hike of 50bp by end-2026 and 80bp by end-2027."

"If the Fed hikes by 25bp, lifting the Fed funds target range to 3.75-4.00%, the key question will be whether Chair Kevin Warsh presents the move as a one-off adjustment to reassert inflation credibility or the start of a broader tightening cycle."

"U.S. consumer prices rose significantly in August, up 0.4% from the previous month. This was not only due to noticeably higher gasoline prices. Even more important is the excessive underlying price pressure, as evidenced by the core inflation rate—excluding energy and food—which came in at 0.3%, exceeding expectations."

"The Federal Reserve has already signaled that it could raise interest rates if the inflation trend does not ease quickly. Now it needs to take action. At its meeting on Wednesday, we now expect the Fed to raise the target range for the Fed Funds rate by 25 basis points."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)