According to SB1 Markets Chief Economist Harald Magnus Andreassen, it is now “highly probable” that the United States Federal Reserve will raise interest rates next week, following inflation figures that match market expectations alongside a robust labor market. Financial markets currently price in an 85 percent probability of a rate hike, up from 70 percent prior to the consumer price release.
August Inflation Prints Meet Expectations at 3.4 Percent
The Consumer Price Index (CPI) in the United States rose by 3.4 percent on an annualized basis in August, matching the rate from July and aligning with analyst projections compiled by Bloomberg. Core inflation, which strips out volatile energy and food components, landed at 2.4 percent. That figure represents a slight tick down from 2.5 percent the previous month, according to the data.
Despite the underlying moderation in core readings, the pace of price growth remains above the Federal Reserve’s stated two percent target. Speaking on the data, SB1 Markets Chief Economist Harald Magnus Andreassen noted that the figures do not alter the broader macroeconomic picture. Energy prices, compounded by geopolitical conflict involving Iran, have pushed the cost of oil above 100 dollars—and reaching over 108 dollars at its peak—with domestic US diesel prices surpassing a record high of 6 dollars per gallon, as documented by photographs from Spencer Platt via AFP and NTB.
Federal Reserve Policy Outlook Under Newly Appointed Chair Kevin Warsh
The path forward for monetary policy hinges heavily on decisions from Federal Reserve Kevin Warsh, who was appointed by President Donald Trump. Markets are reacting sharply to shifting signals from central bank leadership. In his Jackson Hole speech in late August, Warsh characterized recent inflation prints as “more concerning” and described progress on price stability over the preceding two years as modest.
Did you know?
The Federal Reserve monitors two primary gauges for consumer inflation: the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) Price Index. While headline CPI held at 3.4 percent in August, policymakers pay close attention to PCE metrics, which continue to run higher than the central bank’s targets.
Andreassen points out that the labor market remains exceptionally strong across nearly every metric, characterized by low unemployment and accelerating corporate hiring over recent months. When weighed against soaring fuel costs and stubborn inflation, these labor dynamics bolster the argument for monetary tightening.
“Warsh wants the interest rate market to give a message to the central bank, and that message is clear,” Andreassen said, pointing to market pricing. “It is highly probable that they will raise the rate. The only counterargument is that it is a month and a half before the midterm elections. But then Warsh has to decide whether he is a central bank governor or a politician.”
Wall Street and Treasury Yield Reactions Ahead of Wednesday Meeting
Financial markets have experienced pronounced volatility in the wake of the inflation data release. US Treasury yields initially climbed following the report before stabilizing near pre-release levels. Longer-term yields have drifted upward recently, driven higher by escalating energy costs and shifting monetary policy expectations. Meanwhile, Wall Street equity futures pointed toward gains in pre-market trading, offering a brief respite following several sessions of downward pressure.
The upcoming Federal Reserve rate decision, scheduled for Wednesday evening, will serve as the definitive test for these market assumptions. Confidence in a forthcoming rate hike has solidified over the past week, heavily reinforced by unexpectedly strong employment data released on Friday, alongside persistent warnings from central bank officials regarding the stubborn trajectory of inflation.
Frequently Asked Questions
What was the US inflation rate in August?
According to Bloomberg data, the US Consumer Price Index (CPI) rose by 3.4 percent on an annualized basis in August, matching the rate recorded in July.
What is the current market expectation for the Federal Reserve’s next move?
Financial markets are pricing in approximately an 85 percent chance of an interest rate hike at the upcoming central bank meeting, according to SB1 Markets.
Who is the current Chair of the Federal Reserve?
Kevin Warsh serves in connection with the Federal Reserve, having been appointed to the position by President Donald Trump.
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