A fresh reading on consumer prices is likely to keep the Federal Reserve on track to cut interest rates next Wednesday by a quarter percentage point, disappointing some on Wall Street hoping for a half percentage point cut.
The Consumer Price Index on a core basis, excluding volatile food and energy prices — a measure the Fed prefers to zero in on — increased 3.2% in August , in line with expectations and holding the same level as July. A large reason for that was housing. The index for shelter rose 0.5% in August and was the major culprit for keeping inflation higher over the past month.
On a headline basis, CPI rose 2.5% over the prior year in August, a deceleration compared to July's 2.9% annual gain in prices and the lowest annual rate since early 2021.
Stocks dropped sharply lower following the report before starting to come back slightly as of mid-morning.
“Given the stickiness of services inflation, the Fed will likely cut by 25 basis points in the upcoming meeting and reserve the potential for more aggressive action later this year if we have further deterioration in the job market,” said Jeffrey Roach, chief economist for LPL Financial.