U.S. Inflation Ticks Up—But Fed Rate Cuts Still Look Unstoppable
Housing costs climbed 0.4% in August, making the largest contribution to the monthly increase across all categories. Energy rose 0.7%.
Quick overview
- The August consumer price index (CPI) rose 2.9% annually, slightly up from July's 2.7%, and increased 0.3% month-over-month.
- Core CPI also met expectations, rising 0.3% for the month and 3.1% year-over-year, with housing costs contributing significantly to the increase.
- Despite inflation remaining above the Fed's 2% target, markets are optimistic about imminent rate cuts, with 89.1% of traders anticipating a 25-basis-point reduction next week.
- The CPI data indicates broad-based inflationary pressures, leading to expectations that the Fed will begin its easing cycle amid mounting political pressure.
This marks the last major data point the Federal Reserve will have before setting the course of monetary policy next week.
Unlike the surprise drop in wholesale inflation reported on Wednesday, August’s consumer price index (CPI) came in broadly in line with expectations. On an annual basis, CPI rose 2.9%, a slight uptick from July’s 2.7%. Month-over-month, prices advanced 0.3%, just above forecasts and a modest acceleration from the prior month’s 0.2% gain.
Core CPI also met consensus estimates, rising 0.3% on the month and 3.1% from a year earlier. Housing costs climbed 0.4% in August, making the largest contribution to the monthly increase across all categories. Energy rose 0.7% during the month, led by a 1.9% jump in fuel prices, while food prices accelerated 0.46%—the sharpest monthly rise since November 2022.
Rate Cuts: Optimism Persists on Wall Street
Despite CPI still running above the Fed’s 2% annual target, markets remain confident that rate cuts are imminent. According to CME’s FedWatch tool, 89.1% of traders expect a 25-basis-point cut next week, while 10.9% see a deeper 50-basis-point reduction. Odds of cuts at all three remaining Fed meetings in 2025 have now consolidated above 80%.
This morning’s CPI data confirm inflationary pressures are broad-based and picking up slightly. Still, with political pressure mounting, the Fed is widely expected to begin its easing cycle next week.
- Check out our free forex signals
- Follow the top economic events on FX Leaders economic calendar
- Trade better, discover more Forex Trading Strategies
- Open a FREE Trading Account
Save