1. CPI INFLATION
• The Consumer Price Index rose 3.7% year-over-year and 0.6% month-over-month in August, its largest
monthly increase this year, according to Wednesday’s release by the Bureau of Labor Statistics.
• Energy was responsible for much of the increase in headline inflation, rising 5.6% on the month, including
a 10.6% increase in gasoline offset by other key energy metrics.
• Core-CPI, which excludes food and energy prices from the calculation, rose 0.3% from July and 4.3%
year-over-year, hotter than many economists expected. Shelter continued to be a pivotal contributor to
core CPI, while prices for other core items, such as used vehicles and airfare, continued to decline.
• Just one week after the CPI release, FOMC officials are set to meet to conduct their newest policy
decision, where they are largely expected to hold rates steady.
2. INTEREST RATE OUTLOOK
• According to the Chicago Mercantile Exchange’s Fed Watch Tool, an overwhelming majority of futures
markets (97.0%) expect the FOMC to hold the benchmark Fed Funds rate unchanged at 5.25-5.50%.
• Despite a hotter-than-expected core-CPI inflation reading in August, officials prefer the Bureau of
Economic Analysis’ PCE core inflation, which, while currently hovering slightly above the CPI measure,
has shown a steadier decline over the past year.
• Fed policymakers have recently positioned themselves with a more balanced outlook on inflation, viewing
underlying price pressures as fading but cautious about taking their foot off of the break too prematurely.
Presently, futures markets do not predict a rate cut from current levels until June 2024.
