Reports show that inflation ticked up last month, but most economists and investors still think the Federal Reserve will hold off on hiking interest rates again at its meeting next week.
The Fed, which has been raising rates for more than a year, is in a tough position. In order to drive down inflation, it has to keep rates high, but it doesn’t want to overtighten and knock the economy into a recession. Further complicating matters, after a year of straight declines in inflation, price growth has now accelerated two months in a row.The consumer price index data for August showed overall annual inflation rose to a 3.7% rate for the year ending in August.
Despite the one-two punch of both reports coming in hot, investors have dug in their heels and think that the prospect of a pause is a near certainty. The Fed moves slowly and likes to telegraph its moves, so two inflation reports just days before the meeting are unlikely to move the needle. Investors peg 97% odds that the Fed holds its rate target at 5.25% to 5.50% after its meeting on Tuesday and Wednesday of next week. There is a mere 3% chance that Fed Chairman Jerome Powell and other central bank officials shock the economy and hike again.
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