Upturn in core inflation tilts Fed towards smaller rate cut
August’s reading of the core consumer price index came in above expectations, up 0.28% month-on-month.
Economists expected a print of about 0.20%.
Two-year US Treasury yields, which are very sensitive to changing perceptions of what the Federal Reserve’s policy rate will be, jumped as much as 9 basis points in the minutes following the release.
It’s the biggest intraday lift in two-year yields since August 15, when a double dose of good news on the state of the US consumer, along with a moderation in initial jobless claims, allayed recession fears.
The market-implied odds of a 50 basis point cut at this month’s Federal Reserve meeting, which were running at about 30% heading into the inflation print, have since been halved.
Some economists are worried that a slow start to easing means the central bank won’t be providing enough support to a labor market that’s lost significant momentum.
We will see what happens with the PPI but today’s CPI data will reduce the sense of urgency to go 50bps at the September meeting. That raises downside risk to the economy as the Fed drags out policy recalibration.
— RenMac: Renaissance Macro Research (@RenMacLLC) September 11, 2024
