Core CPI rose 0.3% month-on-month, exceeding expectations… Two hikes expected within the year
It is also a test for Federal Reserve Chairman Washington, who has been warning of inflation.
(New York = Yonhap News) Correspondent Kim Yeon-sook = As the pressure of rising prices in the United States shows little signs of abating, the forecast that the U.S. Federal Reserve will raise the base interest rate is gaining further strength.
As the U.S. August core consumer price index (CPI) released on the 11th (local time) showed pressure exceeding expectations, the market is almost certain that the Federal Reserve will raise the benchmark interest rate at the Federal Open Market Committee (FOMC) meeting next week.
The August CPI announced on this day rose 0.4% compared to the previous month and 3.4% compared to the same month last year, meeting expert forecasts.
However, core CPI, excluding highly volatile energy and food, rose 0.3% compared to the previous month, exceeding experts' forecasts (0.2%). The increase rate compared to the previous year was 2.4%.
In particular, as the monthly increase in core prices was higher than expected, an analysis showed that there is a high need for the Federal Reserve to take additional tightening measures to suppress inflation.
This indicator is the last price report card released ahead of the FOMC meeting to be held on the 15th and 16th. There were many observations that it would serve as a decisive yardstick in assessing the direction of the FOMC's monetary policy in a situation where inflationary pressures such as the US-Iran war, rising oil prices, and trade conflict continue.
Immediately after the CPI announcement, market participants immediately expanded their bets on raising the base interest rate.
According to FedWatch of the Chicago Mercantile Exchange (CME), in the interest rate futures market, the probability that the Federal Reserve will raise interest rates by 0.25 percentage points at next week's FOMC meeting rose from 72.4% the previous day to 86.3% this afternoon. A week ago, on the 4th, it was 59.4%.
Some market participants are not stopping at just one hike in September and are even leaving open the possibility of two hikes within the year. However, the future interest rate path may vary depending on not only prices but also additional economic indicators such as employment, consumption, and international oil prices.
This price index is expected to be a significant test for Federal Reserve Chairman Kevin Worth.
In his speech at the Jackson Hole Economic Symposium (Jackson Hole Conference) last month, Chairman Wash emphasized, "We must be confident that the underlying inflation rate is moving clearly and at a sufficient speed toward the target," and "Otherwise, we have work to do."
In a situation where 'sticky' price trends have been confirmed, it is pointed out that if Chairman Wash, who has been warning about inflation, does not take practical measures at this FOMC, he may lose market trust.
U.S. economic media CNBC reported, "Next week's FOMC meeting is expected to be a major test for Chairman Wash due to higher-than-expected inflation figures," and added, "Chairman Wash is now at a crossroads where he must choose whether to raise interest rates or show that he cannot properly control the central bank he leads."
