August CPI Report on Sept. 11 Could Shape Fed’s Next Rate Move

Date: September 10, 2024

The U.S. Bureau of Labor Statistics will release the August Consumer Price Index (CPI) tomorrow, Sept. 11, and the outcome is widely seen as a pivotal test for the Federal Open Market Committee (FOMC) when it meets next week to set interest rates.

After July’s softer-than-expected inflation print, economists expect headline CPI to accelerate to 0.4% month-over-month in August, up sharply from 0.1% in July. Core CPI, which strips out volatile food and energy, is forecast to rise 0.2% from the prior month, according to a Bloomberg survey published today. On an annual basis, headline CPI is projected at 3.4% and core CPI at 2.4%.

The steep monthly jump in headline inflation is largely pinned on energy costs. Gasoline prices rebounded sharply in August after falling through much of July, with the Energy Information Administration reporting a 2.5% month-over-month increase in regular gasoline retail prices. Airline fares and hotel lodging costs are also expected to add upward pressure as summer travel demand remained strong. By contrast, medical care services and used-car prices are seen moderating, while apparel prices likely fell for a second straight month.

Why This CPI Matters More Than Ever

The FOMC has kept the federal funds rate at 5.25%–5.50% since July 2023, and Chair Jerome Powell has repeatedly stressed that the committee needs “greater confidence” that inflation is moving sustainably toward 2% before cutting rates. However, a growing chorus of Fed officials has signaled openness to a rate cut as early as this month if inflation data cooperates. The August CPI report is the last major economic indicator before the Sept. 17–18 meeting.

Market pricing reflects profound uncertainty. The fed funds futures market currently implies roughly 15.5 basis points of additional tightening by next week (meaning about a 62% chance of a 25-basis-point hike) and about 37 basis points by year-end. If core CPI comes in at 0.3% month-over-month, the odds of a quarter-point hike could surge. A 0.2% reading would likely leave the rate decision up in the air, while a 0.1% print could strengthen expectations for a hold or even a cut.

Deeper Dive: What Could Surprise?

Several analysts point out that the “supercore” measure – services excluding housing and energy – remains sticky. In July, supercore rose 0.4% month-over-month, and any acceleration would give hawks ammunition. On the other hand, shelter inflation has been gradually easing, with the S&P CoreLogic Case-Shiller index showing slower home price gains. A larger-than-expected drop in shelter costs could offset energy’s boost.

In a note released this morning, economists at Goldman Sachs highlighted that “used-car prices are likely to post their third consecutive monthly decline, while new-vehicle prices are flat. Medical care inflation, which picked up in July, is expected to moderate as Medicare Advantage plan costs stabilize.”

Historical Context

The last time headline CPI rose 0.4% or more in a month was in March 2024, a report that initially spooked markets but was later dismissed as due to seasonal adjustments. The Fed responded by delaying rate cut expectations. This time, the backdrop is different: the labor market is cooling (nonfarm payrolls for August came in below expectations), and GDP growth slowed in Q2. A high CPI print in September could force the Fed to choose between fighting inflation and supporting employment – a classic policy dilemma.

What to Watch Tomorrow

Release time: 8:30 a.m. ET. Alongside the CPI, the Census Bureau will also release the weekly average retail gasoline price update, which could provide real-time confirmation of the energy component.

Traders should brace for volatility across Treasuries, equities, and the dollar. The 10-year Treasury yield, currently around 3.95%, could move 10–15 basis points in either direction depending on the core CPI surprise.

Bottom Line

The August CPI report is not just another data point – it is the last chance for the Fed to calibrate its message before the September decision. Whether the Fed delivers a hike, a hold, or a surprising cut hinges on whether inflation proves stubborn or cooperative. Either way, the September 11 print will set the tone for the rest of the month.