Stubborn inflation raises prospect of Fed rate hike

Stubborn inflation raises prospect of Fed rate hike

The Federal Reserve appears increasingly likely to hike interest rates next week , as inflation remains stubbornly elevated amid the war with Iran.

New data out Friday showed annual inflation remained unchanged in August, still well above the central bank’s target 2 percent rate. This is raising expectations of a rate hike, even as President Trump pushes for Fed Chair Kevin Warsh to cut rates.

“There’s no guarantee that the Fed will hike next week, but it’s hard to see how the central bank can justify leaving rates on hold,” Chris Zaccarelli, chief investment officer for Northlight Asset Management, said in a statement after the consumer price index (CPI) data was released Friday.

Jai Kedia, a research fellow at the Center for Monetary and Financial Alternatives at the libertarian think tank Cato Institute, said he has been advocating for the Fed to raise rates all year but suggested the central bank has lagged behind the realities of the economy.

“This is a standard problem now with the Fed and the way it’s been doing policy over the past five or six years is that they tend to respond to economic developments way too slowly, and by the time they do so, the economic scenario has changed,” he said.

“I think that it’s probably fine for them to raise interest rates by 25 basis points,” he continued. “But the macroeconomic realities were much worse the whole year when they chose not to raise.”

The central bank’s rate-setting panel is poised to meet Tuesday and Wednesday, with investors pricing in a nearly 87 percent chance that it hikes rates by a quarter-point, according to the CME FedWatch tool.

The CPI, a popular measure of inflation, rose 0.4 percent last month and 3.4 percent over the past 12 months, according to the Bureau of Labor Statistics (BLS).

Check out a full report at TheHill.com .

Welcome to The Hill’s Business & Economy newsletter , I’m Julia Shapero — bringing you the latest on the intersection of Wall Street and Pennsylvania Avenue.

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Key business and economic news with implications this week and beyond:

Inflation remained unchanged in August as gas prices continued to rise amid the war with Iran, new data from the Bureau of Labor Statistics (BLS) showed Friday.

The average price of diesel in the U.S. hit a new record Friday, as the ongoing conflict with Iran and Ukrainian attacks on Russian oil refineries strain the global energy supply.

The U.S. 30-year mortgage rate reached a 14-month high on Thursday, as global bond yields continue to rise.

Upcoming news themes and events we’re watching:

The Federal Reserve wraps up its September meeting next Wednesday at 2 p.m., followed by a press conference with Fed Chair Kevin Warsh at 2:30 p.m. EDT.

Branch out with more stories from the day:

Bond yields rise modestly after Trump’s dividend pledge

Bond yields ticked up slightly on Thursday, after President Trump pledged to send a $5,000 dividend to every American adult if Republicans win the midterms.

Business and economic news we’ve flagged from other outlets:

S&P 500 ends higher as strong inflation data cements rate-hike bets ( Reuters )

Ford announces $1 billion investment at Kentucky plant following DOT criticism on China ( CNBC )

Commerce Secretary Howard Lutnick said Thursday that the $5,000 dividends President Trump promised U.S. adults earlier this week would not come from taxpayer money. Read more

Former President George W. Bush on Thursday lavished praise on Joint Chiefs of Staff Chair Gen. Dan Caine, amid the ongoing war with Iran. Read more

You’re all caught up. See you next week!