4 hrs ago
Hot Inflation and $100 Oil Make Fed Hike Likely
Prices in the United States continued to rise faster than expected in August.
A measure that leaves out food and energy increased by 0.3% in one month.
Prices paid by businesses also rose more than expected.
Oil prices went above $100 per barrel, making fuel more expensive.
These developments made investors think the Federal Reserve may raise interest rates soon.
Investors estimated about a 90% chance of a quarter-point increase at the September 15-16 meeting.
Higher interest rates can make borrowing more expensive, but they may help slow price increases.
President Donald Trump wants lower rates to encourage more economic growth.
The Fed says it is focused on bringing inflation down to 2%.
Core US consumer prices rose 0.3% in August from July, above the 0.2% expected.
Core CPI increased 2.4% annually, while producer prices also exceeded expectations.
US crude oil prices crossed $100 a barrel, and diesel prices topped $6 per gallon.
Traders put the chance of a quarter-point Fed increase at about 90% for the September 15-16 meeting.
President Donald Trump is urging rate cuts, while inflation and oil pressures have led some economists to favor higher rates.
- Who
- The US Federal Reserve, investors, economists, and President Donald Trump are central to the story.
- What
- Expectations for a quarter-percentage-point Federal Reserve rate increase have risen sharply after hotter inflation data and higher oil prices.
- Where
- The developments concern the United States, with Middle East conflict affecting global fuel supplies.
- When
- The Federal Reserve's policy meeting is scheduled for September 15-16; the inflation data covers August.
- Why
- Inflation remains above the Federal Reserve's 2% target, while higher tariffs, oil prices, and business costs are adding to price pressures.
Arguments for Lower Rates
Arguments for Higher Rates
Interest-rate direction
Arguments for Lower Rates
Donald Trump is pressing the Federal Reserve to cut rates, arguing that lower borrowing costs could produce an unprecedented economic boom.
Arguments for Higher Rates
Some economists say the Federal Reserve may need to keep rates higher for longer or raise them to contain persistent inflation.
Interpretation of oil and inflation pressures
Arguments for Lower Rates
Trump has downplayed concerns about oil prices and the conflict, saying the war would end after the midterm elections.
Arguments for Higher Rates
The Federal Reserve faces hotter consumer and producer prices, oil above $100 a barrel, and disrupted fuel supplies that could add to inflation.
Policy priority
Arguments for Lower Rates
Lower borrowing costs are presented as a way to support economic growth and reduce pressure from high rates.
Arguments for Higher Rates
Federal Reserve officials, including Kevin Warsh as described in the article, have emphasized returning inflation to the 2% target.
Key facts
- Core CPI monthly change
- 0.3% increase in August, compared with 0.2% expected
- Core CPI annual change
- 2.4%
- Oil price
- US crude prices crossed $100 per barrel
- Diesel price
- US diesel prices exceeded $6 per gallon
- Implied rate-hike probability
- About 90% for a quarter-point increase, according to CME Group's FedWatch tool
- Fed meeting
- September 15-16 policy meeting
- Inflation target
- The Federal Reserve's target is 2%; inflation has reportedly remained above it for 5½ years
Sources
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