CPI Preview: 0.2% And Fed Holds, 0.3% And They Hike

As extensively discussed in recent days, this week's inflation reports are crucial in determining what the Fed does at next week's meeting, with the CPI report taking on particular importance. The PPI metrics released on Thursday were mixed; headline M/M was slightly hotter than expected, while the Y/Y rate was in line. Core M/M was marginally cooler than the Wall Street consensus, with the Y/Y rate as anticipated. However, the market interpreted the number as especially hawkish, sending rate hike odds surging above 70%. As such, Friday's CPI report will be pivotal in shaping expectations for the September 16th FOMC meeting. A benign report showing continued progress on underlying inflation would strengthen the case for the Fed to remain on hold, particularly given Waller's stated reaction function. Conversely, a hot report or evidence that disinflation is reversing would likely reinforce expectations for a 25bp hike.

Expectations: