Friday’s inflation report could mark a pivotal moment in the U.S. affordability crisis and the tenure of President Donald Trump’s newly-installed Federal Reserve chairman.
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report → mark → chairman
The Consumer Price Index is expected to show that inflation rose 0.4% in August from July, and remained flat at 3.4% from a year ago.
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inflation → expect → %
Core inflation, which strips out food and energy costs is expected to rise just 0.2% month-over-month.
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which → strip → month
On Thursday, U.S. crude oil rose above $100 per barrel for the first time since May, and international Brent crude oil surged past $107.
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oil → rise → 107
Nonetheless, investors believe that the Fed’s decision next week on whether or not to raise interest rates could hang on Friday’s report.
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decision → believe → report
The Fed has not raised or lowered rates at all this year.
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Fed → raise → rates
“if inflation comes in hot, I would consider a rate hike,” said Federal Reserve governor Christopher Waller in a speech earlier this month.
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Waller → come → speech
Yet Waller also noted that “recent data suggest we are finally seeing some signs of disinflation.”
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we → note → disinflation
If those disinflationary signals were to continue “over the next two weeks” — a not-so-subtle reference to Friday’s Consumer Price Index reading — Waller would be inclined to keep rates unchanged.
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Waller → continue → rates
Fed Chairman Kevin Warsh also indicated in late August that he would be carefully eyeing Friday’s report.
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he → indicate → report
Warsh said that he viewed the labor market as “stable,” and saw prices as “more concerning.”
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he → say → prices
While readings of inflation this summer were “better than expected, they do not tell me that underlying trends have meaningfully improved,” he said in Jackson Hole, Wyoming.
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he → expect → Hole
In the weeks since Warsh delivered his speech, the most recent jobs report for August has shown that the U.S. economy expanded by 162,000 roles, far more than had been expected.
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economy → deliver → roles
It also contained positive upward revisions to June and July’s figures.
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It → contain → figures
For Fed watchers, this suggests that the labor market is stable enough that an interest rate hike would be unlikely to throw a wrench in job growth.
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hike → suggest → growth
Warsh did not say how the Fed would react if prices trended higher again in Friday’s report.
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prices → say → report
Typically, during times of labor market stability and rising prices, a central bank will raise rates to try to tamp down on inflation.
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bank → rise → inflation
Warsh, however, has been less clear about how he views his so-called “reaction function.”
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he → view → function
Citigroup economists called the report “crucial,” writing, “The fate of the September FOMC meeting lies with August CPI.”
But a rise in interest rates, while intended to tamp down on inflation, could also compound the affordability issues already gripping Americans.
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rise → call → Americans
The national average price of gasoline hit $4.27 on Thursday, up 44% since the war with Iran began on Feb. 28.
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war → hit → Feb.
Mortgage rates, too, are on the rise and hit 7.07% Thursday.
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rates → hit → %
That’s due mainly to a surge in the 10-year Treasury yield, which on Thursday rose to its highest level since 2007.
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which → ’ → 2007
In a possible sign of things to come, the Bureau of Economic Analysis on Thursday released its Producer Price Index, which measures wholesale business inflation.
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which → come → inflation
It showed that prices ticked up at a 5.4% annual rate in August.
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prices → show → August
But this report covered a period of time “prior to the recent surge in oil and seems somewhat stale,” wrote KPMG chief economist Diane Swonk on X.
In the middle of August, U.S. crude oil was trading in the low $80s per barrel.
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oil → cover → barrel
By Thursday, it had risen more than 20%, an increase that Friday’s CPI data won’t capture.
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data → rise → that
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