Investors in global stock markets are eagerly awaiting the release of inflation data as they seek insights into the recent roller-coaster ride in stocks. On Wednesday, September 13 at 8:30 a.m. Eastern Time or 6 p.m. IST, the Bureau of Labor Statistics will unveil the August Consumer Price Index (CPI) report. The data for August is pivotal in determining the Federal Reserve's policy course for the remainder of the year.
However, investors should exercise caution and not place undue emphasis on the August inflation data in isolation. The Federal Reserve is expected to take into account inflation data for both August and September before making a decision regarding interest rate adjustments at the November Federal Open Market Committee (FOMC) meeting.
Consequently, it is widely anticipated that the Federal Reserve will maintain the status quo during its upcoming FOMC meeting scheduled for September 19-20. During this meeting, the Federal Reserve will also present a summary of its economic forecasts. At the September 20 meeting, it is expected that the Federal Reserve will leave its benchmark interest rate unchanged. Furthermore, Federal Reserve officials have recently reduced the likelihood of an interest rate hike on September 20.
The Federal Reserve will make its determination on whether to raise the federal funds rate at the November 1 FOMC meeting, taking into account the comprehensive CPI data for both August and September. Presently, the markets indicate a roughly 44% probability of a rate hike at the Federal Reserve's November meeting, up from 28% a month earlier.
Positive inflation reports, particularly those concerning core inflation, are likely to dissuade the Federal Reserve from pursuing future rate hikes. However, if inflation exhibits stubbornness or even experiences a minor uptick in the Consumer Price Index (CPI) data, the Federal Reserve may opt to await the release of September data before considering any interest rate adjustments at the November FOMC meeting.
It is expected that inflation will surge notably in August, potentially reaching around 0.8%. However, when food and energy are excluded from the equation, core CPI is projected to rise by 0.4% on a month-on-month basis. Notably, the S&P 500 Index (SPX) has advanced by 16% year-to-date, partly driven by indications that the U.S. economy is on a trajectory toward a "soft landing." This scenario entails the Federal Reserve's ability to reduce inflation without causing significant harm to economic growth.
The job market's recent performance has affirmed its robustness, yet it falls short of raising concerns that the Federal Reserve will need to further hike interest rates to combat inflation—a development that rattled markets in the previous year.
