A Hot CPI Report May Force A September Rate Hike

The upcoming August CPI report is pivotal for the Fed's September rate decision, with policymakers signaling data dependence and a high bar for holding rates steady.

Fed Governor Waller and Chair Warsh's recent remarks suggest the burden of proof has shifted: only a meaningful CPI downside surprise could prevent a rate hike.

Consensus expects a hot CPI print, with headline CPI forecast at +0.4% m/m and 3.4% y/y, while services and energy inflation pose upside risks.

The 2-year Treasury yield near 4.4% implies tighter monetary conditions ahead, historically preceding further Fed rate hikes.

Fed governor Chris Waller, this week, whether knowingly or not, put an even bigger spotlight on this week's August CPI report due on September 11, noting that his monetary policy decision will be heavily influenced by the data.