CME Fed Watch Tool: Rising Inflation in the U.S. Backed Fed’s Rate Hike Continuation Strategy

According to the highly anticipated latest data from the U.S. Bureau of Labor Statistics, the U.S. inflation beat expectations in September: the Consumer Price Index (CPI) rose by 3.7% YoY. Although core inflation fell slightly from 4.3% to 4.1%, economists expected that the U.S. Federal Reserve would stay committed to raising the federal funds rate given the ongoing inflationary trend.

According to the CME Fed Watch Tool

(https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html), most institutional investors aren’t expecting any interest rate action from the Fed at the upcoming Nov. 1st policy meeting, however, they are giving a 30.5% chance of a quarter-percentage-point hike for the next, December 13, FOMC meeting.

Meanwhile, in the accompanying note, the Labor Department articulated, that “The Consumer Price Index for All Urban Consumers (CPI-U) rose a seasonally adjusted 0.4% in September, following a 0.6% increase in August.”

The U.S. agency added: “The largest contributor to the MoM increase in the all goods index was the housing index, which accounted for more than half of the increase. The increase in the gasoline index also contributed significantly to the monthly increase in all items”.

It looks that price of energy and housing will keep on being two largest contributors to elevated inflation numbers going forward.