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.
Commerzbank economists have noted that the August U.S. CPI data were in line with expectations, but still too high for the Federal Reserve. Excessive underlying price pressure was emphasized, and the Fed has signaled readiness to hike rates. They now anticipate a 25 basis point increase in the Fed Funds target range at Wednesday's meeting, with futures pricing tightening towards 2027.
The Fed funds futures have increased the probability of a 25 basis point hike this week to 88%, up from 62% last Monday. The total hike is expected to be 50 basis points by the end of 2026 and 80 basis points by the end of 2027. If the Fed raises rates by 25 basis points, bringing the target range to 3.75-4.00%, Chair Kevin Warsh's presentation of the move will be key.
He may view it as a one-off adjustment to restore inflation credibility or as the beginning of a broader tightening cycle. U.S. consumer prices surged in August, rising 0.4% from the previous month, driven by higher gasoline prices and excessive underlying price pressure, as seen in the core inflation rate (excluding energy and food), which came in at 0.3%, above expectations.
The Federal Reserve has already indicated it could raise interest rates if inflation does not ease quickly. At their meeting on Wednesday, the Fed is now expected to raise the target range for the Fed Funds rate by 25 basis points.
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