August core inflation firms, lifting odds of a September Fed increase

A stronger-than-expected monthly increase in core consumer prices pushed market odds of a Federal Reserve rate increase at its Sept. 16 meeting to 82%, from 68% before the release, Reuters reported. The odds briefly touched 90% on Friday.

August’s inflation report cut both ways. Core prices, which exclude food and energy, rose 0.3% over the month against an expected 0.2% increase, even as annual core inflation eased to 2.4% from July’s 2.5%. Overall consumer prices increased 0.4%, up from 0.1% in July, while the annual rate held at 3.4%, according to Reuters’ account of the Bureau of Labor Statistics release. A rebound in gasoline costs contributed to the monthly acceleration.

Short-term borrowing benchmarks moved with the rate outlook. The two-year Treasury yield rose 4.4 basis points to 4.594%, while the 10-year yield fell 2.4 basis points to 4.92%, Reuters reported. Stocks also advanced, with the Nasdaq and S&P 500 up 0.8%.

Some forecasters see the September meeting as the start rather than the end of tightening. Ian Lyngen, head of U.S. rates at BMO Capital Markets, expects a quarter-point increase next week followed by at least another quarter-point by year-end, according to CNBC.

That is a forecast, not a settled policy decision. Alexandra Wilson-Elizondo, co-chief investment officer of multi-asset solutions at Goldman Sachs Asset Management, called next week’s decision a “jump ball,” Reuters reported. She cautioned that the inflation survey preceded the latest energy-price increases, including Brent crude’s climb above $100 a barrel, and subsequent commodity strength beyond energy.