As U.S. inflation appears to be stronger and more persistent than market expectations, the Fed’s key rate hike cycle is expected to continue longer and the final rate level will rise.
According to the U.S. Department of Labor on the 13th (local time), the consumer price index (CPI) rose 8.3% in August from the same month last year.
As a result, the Fed’s key rate year-on-year growth rate peaked at 9.1% in June and continued to decline for two consecutive months in July and August.
However, the 8.3% figure itself exceeded the market’s forecast (8.0%), pouring cold water on expectations that the recent fall in international oil prices will dampen inflation.
In addition, it rose 0.1% from the previous month, contrary to expectations that it would fall 0.1% from the previous month.
The situation of the source CPI, excluding highly volatile energy and food, was more serious.
The core CPI rose 6.3% year-on-year, worse than the previous month (5.9%).
It is the first time in six months that the core CPI growth rate has expanded.
The core CPI also rose 0.6 percent on-month, exceeding the market’s forecast of 0.3 percent and greater than the previous month’s 0.3 percent, suggesting that inflationary pressure was not extinguished.
As a result, the market’s expectation that the Fed will turn in a “tight mode” has collapsed as the U.S. inflation has been dampened, and the Fed is widely expected to take a more aggressive attitude.
The 0.5 percentage point increase card disappeared from the discussion table at the Federal Open Market Committee (FOMC) meeting from the 20th to the 21st.
According to the Chicago Mercantile Exchange (CME) FedWatch, the probability of a 0.75%-point rate hike was expected to be 86 percent at the September meeting and 14 percent at a lower 0.5 percentage point increase, but the possibility of a 0.5 percentage point increase was zero after the price index was released.
Instead, the probability of a 1% point increase, which was not considered the day before, soared to 38%.
Economists at Nomura, the Japanese investment bank (IB), also raised the FOMC’s forecast for a key rate hike this month from 0.75 percentage point to 1 percentage point.
Former Treasury Secretary Larry Summers tweeted that if he were a Fed figure, he would raise the Fed by 1 percentage point to improve its credibility.
The one-percentage-point increase is a measure that the Fed has not tried since the 1990s, when it adopted the Federal Fund Rate (FFR) as a monetary policy tool as it is now.
