Traders have sharply increased bets on a US Federal Reserve rate hike next week after August inflation data showed underlying price pressures remained elevated.
Markets are now pricing in about a 90% probability of a quarter-percentage-point rate hike at the Fed's September 15-16 meeting, up from around 70% before the consumer price inflation report, according to Bloomberg.
The shift came after the US Consumer Price Index rose 0.4% in August, matching expectations, while the annual inflation rate stood at 3.4%, also in line with the Dow Jones consensus.
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However, core CPI, which excludes volatile food and energy prices, increased 0.3% month-on-month, coming in 0.1 percentage point above expectations. On an annual basis, core inflation was 2.4%, in line with estimates.
The August CPI report is the last major inflation reading the Fed will receive before its policy meeting next week, making it a key input into the rate decision.
Energy prices were a major contributor to the monthly increase. Gasoline prices jumped 3.9%, accounting for more than one-third of the overall CPI gain. The broader energy index rose 2.1% during the month and was up 16.3% from a year earlier, amid heightened tensions in the Middle East.
Shelter costs also increased 0.3%, after moderating over the previous two months. Transportation services rose 0.5%, while used cars and trucks gained 0.4%. New vehicle prices increased 0.3%.
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