August U.S. CPI could determine whether the Federal Reserve will implement its first interest rate hike in more than three years, with the current probability of a September rate hike standing at around 70%.

The U.S. Department of Labor will release August Consumer Price Index (CPI) data at 20:30 Beijing time tonight. Market expectations are for headline CPI to rise 0.4% month-over-month (MoM) and 3.4% year-over-year (YoY), while core CPI is projected to increase 0.2% MoM and 2.4% YoY. This data will serve as a key reference for the Federal Reserve’s decision on whether to implement its first interest rate hike in over three years next week. The Fed’s last rate hike occurred on July 26, 2023, when it raised rates by 25 basis points, pushing the federal funds rate target range to 5.25%–5.50%. U.S. August Producer Price Index (PPI) rose 5.4% YoY, up from July’s 4.8%. Meanwhile, the Iran-related conflict has pushed U.S. oil prices above $100 per barrel. Combined with transportation, supply chain, and tariff costs, the Fed will closely monitor whether energy prices are passing through to core goods and services prices. The market is particularly focused on the core CPI MoM figure. Analysts note that if core CPI rises 0.2%, it may provide room for the Fed to hold rates steady; if it rises 0.4%, it could significantly push policy toward a rate hike. Should the figure come in at 0.3%, traders may further scrutinize unrounded data and sub-components including housing, services, and core goods. CME FedWatch data shows the market currently assigns a roughly 70% probability that the Fed will raise rates by 25 basis points in September, lifting the target range to 3.75%–4.00%. Bank of America argues that even if CPI meets expectations, it may still be sufficient to support a rate hike; Nomura Securities, however, expects the Fed to keep rates unchanged.