U.S. Inflation Data in Focus Ahead of Federal Reserve Rate Decision - Expert Analysis by Dhara Ranasinghe
As the world watches a fiery U.S. presidential debate, upcoming U.S. inflation numbers are quietly waiting to make a big impact on the markets. The August consumer price inflation report, set to be released later today, is the final major data release before the highly anticipated Sept. 18 Federal Reserve rate decision.
With markets still pricing in a 35% chance of a 50 basis points cut next week (a 25 bps cut is already priced in), the latest inflation numbers could shift traders' rate bets and have broader market implications.
Economists expect a 0.2% month-on-month rise in both the headline and core consumer price index, with the annual headline measure projected to dip to 2.6% in August from 2.9% in July.
If these numbers hold, it could solidify expectations for a modest rate cut next week, potentially boosting the dollar. Keep an eye on rental inflation, as a surprise rise in July raises questions about its sustainability.
Market sentiment seems to be swayed by Tuesday's debate between Kamala Harris and Donald Trump, with U.S. Treasury yields, the dollar, bitcoin, and U.S. stock futures softening. Harris is seen gaining an edge in the election race, with online betting odds reflecting the shift.
On the economic front, a 10-year Treasury auction later today will gauge investor appetite for U.S. government debt. Bank stocks, which saw a decline recently, could see further movement as the Fed's regulatory chief proposes raising big banks' capital by 9%.
In Europe, UniCredit's stake acquisition in Commerzbank raises speculation about potential leadership changes. Key events to watch today include the U.S. August CPI release and the 10-year Treasury auction.
Analysis: The U.S. inflation report and upcoming Fed rate decision are crucial for investors and consumers alike. A rate cut could impact borrowing costs, savings, and investment returns. Market reactions to political events and economic data can offer opportunities for traders and investors to adjust their strategies and portfolios accordingly.