U.S. Core Inflation Rose 0.3% in August, Faster Than Anticipated

As a seasoned crypto investor with over two decades of market experience under my belt, I have learned to read between the lines when it comes to economic data releases like today’s U.S. CPI report. While the headline number may have come in as expected, the core rate rising more than anticipated is a cause for concern.

Last month’s U.S. Consumer Price Index (CPI), as anticipated, matched expectations. However, the core rate surpassed economists’ predictions, which could lead the Federal Reserve to reduce its key borrowing rate by 0.25% in the coming week.

In August, the Consumer Price Index (CPI) increased slightly more than anticipated, at 0.2%, compared to predictions of 0.2% both for August and July. Conversely, on an annual basis, the CPI saw a 2.5% increase instead of the forecasted 2.6% and the previous month’s 2.9%.

In simpler terms, the increase in the Core Consumer Price Index (CPI), which doesn’t consider food and energy prices, was more than expected for August at 0.3%, compared to a predicted 0.2% and a previous increase of 0.2% in July. On an annual basis, this rate came in at 3.2%, matching the forecast but higher than the 3.2% seen in both June and July.

In conventional markets today, U.S. stock index futures have experienced a slight increase in losses. Specifically, the S&P 500 and Nasdaq are down by 0.5%. Meanwhile, the yield on the 10-year U.S. Treasury has climbed 3 basis points to reach 3.68%, and the dollar index has gone up by 0.15%. The value of gold has decreased by 0.45% to approximately $2,532 per ounce.

As an analyst, based on the data available, I had anticipated a 71% likelihood that the Federal Reserve would decrease its benchmark federal funds rate range by 25 basis points to 5%-5.25%, during their upcoming meeting. There was also a 29% probability that they might cut it by 50 basis points, lowering it to 4.75%-5%. However, the persistent core inflation figures reported this morning, which monetary policymakers usually prioritize over the headline number, could fortify expectations that the Fed will opt for the smaller reduction.

Following the release of the Consumer Price Index (CPI), there’s a significant increase in the likelihood of the Federal Reserve lowering interest rates by 0.25 percentage points within the next week, now standing at 85%. Looking ahead to later months, the probability that the Fed will reduce rates by 0.75 percentage points by the end of this year has gone up to 14%, compared to just 9% yesterday.