Small Aug CPI rise seen sealing 25 bp cut next week
2024.09.11 09:06
(Reuters) – U.S. consumer prices rose marginally in August, but underlying inflation showed some stickiness, which could discourage the Federal Reserve from delivering a half-point interest rate cut next week.
The consumer price index increased 0.2% last month after climbing 0.2% in July, the Labor Department said on Wednesday. In the 12 months through August, the CPI advanced 2.5%. That was the smallest year-on-year rise since February 2021 and followed a 2.9% increase in July.
Economists polled by Reuters had forecast the CPI gaining 0.2% and rising 2.6% year-on-year. Though inflation remains above the U.S. central bank’s 2% target, it has slowed considerably.
MARKET REACTION:
STOCKS: U.S. stock index futures extended a slight loss to 0.35% pointing to a soft open on Wall Street BONDS: The rose to 3.676% and the two-year yield rose to 3.677%FOREX: The turned 0.11% higher and the euro turned down 0.09%
COMMENTS:
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“The report basically confirms that core inflation remains in the pipeline. It probably seals a quarter percentage point rate cut from the Fed.”
“Headline inflation was actually low, especially year-over-year, and it’s headed in the right direction, approaching the Fed’s 2% target.”
“I don’t know if it’s a blip, but this report shows core inflation is still a question mark. And that will probably motivate the Fed to lower rates by 25 basis points.”
WASIF LATIF, PRESIDENT AND CHIEF INVESTMENT OFFICER, SARMAYA PARTNERS, PRINCETON, NEW JERSEY
“That’s a clear green light for the Fed to proceed. The market reaction is probably reflecting that. The Fed was looking for that clear signal. And so, this to me would be a much stronger all clear signal to proceed with the rate cut that they need. The 25 bps cut was baked in. Maybe this increases the probability of 50 basis point cut.”
