Any doubt Fed will raise rates by 75 basis points next week is gone after hot U.S. inflation data

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There is no doubt that the Federal Reserve will raise its benchmark interest rate by 0.75 percent next week, economists said, following heated US consumer price inflation data for August released on Tuesday.

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Ian Shepherdson, Chief Economist at Pantheon Macroeconomics, said: “Federal Reserve officials have made it clear that they will not slow rate hikes until they see strong evidence that core inflationary pressures are under pressure. decreasing.”

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“These figures mean that the possibility of a 50 basis point increase next week is over,” he said.

CPI shows price hike in August for most commodities except energy

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“Today’s upward surprise in the core index follows a third consecutive 75 basis point tightening by the FOMC next Wednesday. This is likely to follow policy statement verbiage and Chair Powell’s meeting,” said Josh Shapiro, chief US economist at MFR Inc. Will play a key role in skewing the U.S.’s comments to the hawkish side of the spectrum.

According to CME Group’s Fed Watch tool, investors who trade the federal funds futures market are pricing in a 20% chance of a 100 basis point move next week.

“It looks over-the-top,” Shepherdson said.

Economists at Nomura Securities now see an increase of 100 basis points in September and Diane Swank, chief economist at KPMG, told the Wall Street Journal that the report was a “nightmare” that raised the table by 100 basis points.

Core inflation rose 0.6% in August, after rising 0.3% in the prior month. The year-on-year rate rose to 6.3% after 5.9% in July.

Prior to the data, most economists thought the Fed would slow the pace of rate hikes to a half percentage point increase in November, but now expects a bigger increase of 0.75 percent, according to CME data.

Fed officials have said they would like to see several month-to-month inflation numbers below 3% annually before they turn less fresh and think about stopping rate hikes.

The Fed will channel its internal Clint Eastwood next week

“For now, we are not even remotely close,” said Roberto Perli, head of global policy at Piper Sandler.

As noon approached, several economists raised their forecasts on how high the Fed would raise its policy rate this year.

US Stock DJIA,
-4.04%

spx,
-4.43%
After the CPI data, there was a sharp decline on Tuesday. Yield on 10 Year Treasury Note TMUBMUSD10Y,
3.419%
reached 3.4%.

Credit: www.marketwatch.com /

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