US inflation: A big downside miss to core CPI to knock the Fed off course – Scotiabank

Analysts at Scotiabank offer their take on Tuesday’s US inflation data and its implications on the Fed rate hike trajectory.

Key quotes

“Tuesday’s CPI figures ... may further inform whether the FOMC hikes by 75bps or 50bps on September 21st but there is a high bar to whether they matter.”

“I say high bar because when given the opportunity to lean against market pricing for a 75bps move, Chair Powell took a pass in his appearance at a Cato Institute event. Several of his FOMC colleagues appeared to behave similarly.”

“It would probably take a big downside miss to core CPI to knock the Fed off course and even that is not assured.”

“It’s the annualized month-over-month core CPI reading that matters more than the year-over-year rate and so an estimated 6.3% m/m SAAR reading in core CPI would likely motivate the FOMC to believe that underlying inflation continues to run hot with broad pressures.”

“One input to the call is the Cleveland Fed’s CPI ‘nowcasts.’ ... They have been a useful but not infallible source of input into the estimates. Still, the signal on core inflation points to a hot reading that should have markets looking through headline influences stemming from energy prices.”