The CPI report arrives tomorrow. It could determine whether the Fed hikes rates next week.

Key Points:

• The August Consumer Price Index (CPI) report, due Friday, is a crucial inflation measure that could influence the Federal Reserve's decision on its first interest rate hike in over three years, with economists expecting a 3.3% annual increase.
• The report will help Fed officials assess whether recent inflation easing is a sustained trend or if inflation remains persistent due to factors like high fuel prices from the Iran war, impacting their core mandate to control inflation by adjusting borrowing costs.
• Nearly half of Fed policymakers are currently inclined to support a rate hike later this year, which would be the first since July 2023, as ongoing inflation pressures and high oil prices push markets to price in a 70% chance of a rate increase at the September 16 meeting.
• Core inflation, excluding volatile energy and food prices, is expected to have risen 2.4% annually in August, and Fed officials are closely monitoring this metric to understand the pass-through effects of sustained supply shocks and higher commodity costs.
• Additional inflation drivers include tariffs, rising health insurance costs, and AI-related expenses, with experts indicating that the CPI report is unlikely to change the Fed’s view that inflation progress is limited, supporting the likelihood of a rate hike in September.