Will Inflation Kill the Chances of a September Rate Hike?
Published on 12 August 2026
Overview
The article discusses the implications of the upcoming US CPI inflation data on the Federal Reserve's monetary policy, particularly regarding the potential for a rate hike in September. Recent labor market data has raised questions about the Fed's ability to maintain a hawkish stance on inflation.
Current Economic Context
The publication of the July CPI inflation data is anticipated to be a critical indicator for the Federal Open Market Committee (FOMC). Recent non-farm payroll (NFP) data showed a significant miss in job creation, with a loss of 23,000 jobs in July, which has led to a reassessment of the likelihood of a rate hike in September.
Market Sentiment
Market expectations for a September rate hike have shifted dramatically, with the probability now resembling a coin toss. This change is attributed to the weak NFP data and the Fed Chair's inconsistent messaging regarding inflation control.
Analysis of Recent Data
Non-Farm Payrolls
The NFP data for July was particularly poor, with downward revisions for the previous two months totaling 103,000 jobs. The unemployment rate, however, remained low at 4.1%, which some FOMC members consider a key indicator.
Consumer Price Index (CPI)
The article highlights that the June CPI data was below expectations, particularly in core inflation, which excludes volatile food and energy prices. The upcoming CPI report is expected to show a decline in core inflation to its lowest level since March 2021, with a consensus estimate of 2.5%.
Expectations for the Upcoming CPI Release
Analysts are closely watching the core measure of CPI, which is projected to decrease, driven by lower fuel prices. However, an increase in food prices is anticipated. The overall headline CPI is expected to continue its downward trend, with estimates around 3.4%.
Market Reactions
Prior to the CPI release, the EUR/USD currency pair has shown minimal movement, reflecting market caution. Additionally, oil prices have been rising, influenced by geopolitical tensions in the Strait of Hormuz.