United States core consumer prices rose 0.3 percent in August against Wall Street expectations of a 0.2 percent increase, driving market expectations of a Federal Reserve rate hike to over 85 percent ahead of the central bank’s rate decision scheduled for 16 September.
Surge in rate hike odds
The headline consumer price index rose 0.4 percent month-on-month and 3.4 percent year-on-year in August, while the producer price index showed a 5.4 percent year-on-year increase. Non-farm payroll data showed the economy created 162,000 jobs during the same month.
Hike expectations surged across contracts. The CME FedWatch probability of a 25 basis point rate hike rose from 56 percent prior to the consumer price data release to 85.4 percent, pricing a target range of 3.75 percent to 4 percent. Betting platforms adjusted too. Kalshi stood at 48 percent before the release, while Polymarket moved from 49 percent to 81 percent. In July, market probability of a September hike had stood at 36 percent.
Treasury yields and crypto volatile
Treasury yields climbed steeply across the curve after the inflation numbers arrived. The US 10-year Treasury yield rose from 4.60 percent before the release to 5.00 percent. The 2-year yield rose from 4.20 percent to 4.56 percent.
Bitcoin reached $78,000 following an initial 1 percent rebound in one hour on the headline reading, but fell below $77,000 once markets absorbed the core figures. The token later stabilised at $77,300.
The inflation print followed comments from Federal Reserve Chair Kevin Warsh at the Jackson Hole symposium in late August, where he stated that summer inflation readings did not show significant improvement in underlying trends. Donald Trump had publicly called for an interest rate cut on 4 September, threatening trade restrictions if the Fed did not comply.
Source: United States core consumer prices | Data: FRED — St. Louis Fed
