Markets Face Crucial Test as Inflation Data Likely to Increase Pressure on the Fed
Next week will help determine what the Federal Reserve’s near-term outlook for interest rates will be as the U.S. central bank faces the difficult task of balancing between its ongoing battle to contain inflation and cool the economy without tipping it into a recession.
As of Friday morning, financial markets see a 94% chance of the Fed leaving rates unchanged at its meeting later this month, compared to just a 6% chance of a 25-basis point increase, according to Investing.com’s Fed Rate Monitor Tool.
Source: Investing.com
But what the Fed will do beyond September remains an open question, with future hikes not entirely off the table.
In fact, traders now see a roughly 40% chance of the Fed raising its benchmark interest rate by a quarter-percentage-point to a range between 5.50%-5.75% at its November meeting.
Source: Investing.com
At the same time, hopes of seeing rate cuts by early 2024 have almost completely faded.
With investors growing increasingly uncertain over the Fed’s monetary policy plans, a lot will be on the line next week as cracks begin to widen in the year-to-date rally on Wall Street amid rising bond yields, spiking oil prices and sending the dollar higher.
With Fed Chair Jerome Powell reiterating that his main objective is to bring inflation back under control, next week’s CPI inflation data will be key in determining the Fed’s policy moves through the end of 2023.
The U.S. government will release the August report on Wednesday, September 13, at 8:30 AM ET, and the numbers will likely show that prices continue to increase at a pace far more quickly than the 2% rate the Fed considers healthy.
As per Investing.com, the consumer price index is forecast to rise 0.5% on the month after edging up 0.2% in
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