Is August's CPI 'just right'—not too hot, not too cold? Wall Street intensively bets on a Fed rate hike next week; Worshe can no longer cry 'wolf' again.

Interest-rate futures markets immediately priced in a significantly higher probability of a rate hike. Following the CPI release, markets briefly pushed the odds of a 25-basis-point hike at the Fed’s September 15–16 meeting to roughly 90%, before retreating slightly to about 85%—clearly up from approximately 70% prior to the CPI data. Markets also began pricing in a second rate hike this year: the probability of at least one additional hike before year-end rose from 94% to 97% within a single day. The 'New Fed Watch' dissects the CPI: Core inflation cools annually—but short-term trends are re-accelerating Nick Timiraos, chief economics correspondent for The Wall Street Journal—often dubbed the 'New Fed Watch'—broke down the CPI data further on social media. He noted that the unrounded month-on-month increase in core CPI for August was 0.29%, translating to an annualized pace of 3.5%; the three-month annualized growth rate rose from 1.6% the prior month to 2.0%, while the six-month annualized rate edged up from 2.4% to 2.6%. Although the 12-month core CPI inflation rate dipped slightly—from 2.5% to 2.4%—the decline was marginal. In other words, over a 12-month horizon, core inflation continues its gradual cooling trend—but across shorter, more timely metrics (e.g., three- and six-month annualized rates), the disinflation process has stalled—or even reversed. Timiraos also pointed out that core services prices excluding shelter rose 0.51% month-on-month in August—the highest since January—and were up 3.0% year-on-year; core goods prices rose 0.11% month-on-month and 0.7% year-on-year; and shelter prices rose 0.26% month-on-month and 3.0% year-on-year. Thus, the August core CPI’s upside surprise cannot be simplistically equated with a broad-based, renewed acceleration in underlying U.S. inflation. Wall Street’s consensus shift: Not necessarily runaway inflation—but sufficient to justify a September hike Despite these nuances, Wall Street is increasingly convinced the Fed will find it difficult to hold rates steady next week. Kathy Bostjancic, Chief Economist at Nationwide, stated that rising oil, gasoline, and diesel prices raise concerns about further energy-price pass-through to other goods and services—and upward pressure on inflation expectations—prompting her to now expect a rate hike next week. Anna Wong, Bloomberg’s Chief U.S. Economist, and economist Troy Durie likewise argue that the August CPI may persuade dovish members of the FOMC to abandon their stance of holding rates steady—especially amid already hawkish market sentiment…

U.S. CPI beats expectations; rate-hike expectations rise: Global assets under pressure—what to expect for China’s A-shares on Monday?

Did U.S. August CPI exceed expectations? On September 11, the U.S. Bureau of Labor Statistics released August CPI data. Overall CPI rose 0.4% month-on-month and 3.4% year-on-year. Core CPI—excluding food and energy—rose 0.3% month-on-month (versus 0.2% expected), slightly above consensus; year-on-year core CPI rose 2.4%, matching expectations and hitting its lowest level since March 2021. The 0.3% month-on-month core CPI reading was the most striking figure in this report. Market consensus had anticipated 0.2%, but the actual result came in 0.1 percentage point higher. Don’t underestimate that 0.1: As earlier analytical frameworks clearly outlined: — If core CPI month-on-month ≥ 0.3%, a September hike is virtually certain; — If exactly 0.2%, no hike—but with significant internal FOMC dissent; — If ≤ 0.1%, no hike—and no further hikes for the remainder of the year. Now that the figure falls into the ≥0.3% category, a September rate hike is all but locked in. Although overall CPI year-on-year stood at 3.4%—in line with expectations—the upward push from energy prices was unmistakable. Oil prices breached $100 per barrel this week, and U.S. retail diesel prices hit an all-time high—indicating minimal progress toward the Fed’s inflation target. Inflation stickiness isn’t ‘about to fade’—it’s being ‘reignited by energy prices.’ ………… What impact will heightened Fed rate-hike expectations have? Following the CPI release, CME’s ‘FedWatch Tool’ showed the market-implied probability of a 25-basis-point hike in September rose to 72.4%, leaving only a 27.6% chance of holding rates steady. This probability had already climbed above 70% after the prior PPI release; the CPI data further cemented the hike expectation. The probability of a September hike surged from under 40% in early August to over 70%—driven by the confluence of three forces: soaring oil prices, an upside surprise in PPI, and Fed Chair Worshe’s hawkish rhetoric. At Jackson Hole, Worshe explicitly stated that ‘price stability is the top priority,’ and emphasized that the 2% inflation target is ‘hard, fixed.’ This stands in sharp contrast to the perception formed during former Chair Powell’s tenure—that 2% was a ‘soft constraint.’ Even if no hike occurs in September, the probability of cumulative hikes by October remains at 54.8%. That means, regardless of September’s outcome, the baseline scenario is now ‘higher rates—not lower.’ Markets are no longer debating ‘whether to hike,’ but rather ‘how much—and when.’ ………… What impact will rising rate-hike expectations have on global risk assets? The direct transmission channel is: Surging U.S. Treasury yields → global risk-off sentiment…

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