If there’s one figure that the Fed is likely to focus on in the coming months, it’s the Consumer Price Index. Today’s data comes as inflation continues to run hot, pushing the Fed into a corner where they might have to make some changes in the near term.
Today’s data is expected at 0.4% for the month of August, a slight dip from the previous number of 0.5%. Excluding Energy and Food, CPI is expected to hit 0.3%. On a yearly basis, the figure is expected at 5.4% while the Core CPI is set to hit 4.2%.
It’s worth noting that the market reaction to such figures is very relative to the current economic situation of the US and the entire world yet a figure in line with expectations could quickly fuel a slightly hawkish sentiment, according to analysts. Any numbers above forecasts will lead to extra confirmation that the Fed will act against its purchase program and possibly even hint at interest rates.
At the same time, the Fed is keeping an eye on employment data which was much lower than expected for the month of August. In other words, and according to analysts, even if inflation continues to run hot, the pace might slow down if employment numbers do not improve. This was further reinforced by Fed Chairman Powell who said he would like to see stronger job data before tapering is announced. From the Fed’s perspective, inflationary pressures are temporary and should fade away with time and as the situation returns to normal.
In terms of economics, tapering of asset purchases could set the stage for a hike in interest rates which, in turn, could positively affect the Dollar, based on historical evidence. Analysts believe that it might not be so linear to make a decision on this yet some actions would be considered if inflation does indeed remain elevated.
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