Hot US Core Inflation All but Locks In First Fed Rise Since 2023
American inflation held at 3.4% in August, but the core reading’s 0.3% monthly jump — the largest since April, with petrol up 27% on the year doing a third of the damage — sent next week’s rate-rise odds as high as 90%; the CME’s odds-tracker crashed under the traffic. A rise would be new chairman Kevin Warsh’s first, delivered over a president publicly demanding cuts. Ten-year Treasury yields touched 4.98%, a three-year high.
The print resolves the Fed’s dilemma by removing the choice: a war-driven petrol surge is exactly the shock central banks are taught to look through, but “supercore” services accelerating alongside it is the second-round evidence that forbids looking away — and Mr Warsh, whose Jackson Hole doctrine was “trends matter most”, now owns a trend. The politics are combustible by design: a hike into the president’s tariff threats and cut demands will test the Fed’s independence louder than any speech, and one economist’s verdict — the committee has “painted themselves into a corner” — applies to both buildings. For Britain the mechanism is familiar: Treasuries anchor gilts, gilts anchor mortgages. Watch Wednesday’s decision and the dot plot — one hike is priced; the signal about more is not.