Hot August inflation lifts Fed hike odds toward 90% as BOJ risks mount

  • U.S. inflation strengthened, increasing expectations for a Federal Reserve rate hike.
  • August CPI rose 0.4% monthly and 3.4% annually; core CPI gained 0.3%.
  • The BOJ meets September 17-18 as markets assess a possible move to 1.25%.

Stronger-than-expected August U.S. inflation has pushed the probability of a 25-basis-point rate increase at the Federal Open Market Committee’s September 15-16 meeting to nearly 90%. Investors are focusing on whether the Federal Reserve will signal additional tightening through its economic projections, dot plot and comments from Fed Chair Kevin Warsh. The 10-year Treasury yield recently approached 5% intraday, increasing valuation pressure on AI and semiconductor stocks. The Bank of Japan will meet on September 17-18, with markets increasingly pricing a policy-rate increase to 1.25% from 1.00%; an unwind of the yen carry trade, a strategy that uses low-cost yen borrowing to fund riskier investments, could weigh on global risk assets. Brent crude and West Texas Intermediate have risen to around $100 a barrel, adding to inflation concerns. In South Korea, brokerages say easing oil prices and long-term U.S. yields will be needed for the Kospi to reclaim and sustain the 7,000 level after an AI and semiconductor-led rally faded.

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