Fed, eyeing inflation data, may lean toward a hike, traders bet

Traders price about a 70% chance of a quarter-point rate hike at the Fed's meeting next week. The Fed has left its policy rate in the 3.50% to 3.75% range since December, and a consumer inflation report due Friday could shape next week's decision. Sept. 10 (Reuters) - The Federal Reserve is a bit more likely to raise short-term borrowing costs at its meeting next week, traders bet on Thursday, after the first of this week's key inflation reports. Data showed U.S. producer prices rose 5.4% in the 12 months through August, and the country's weekly unemployment insurance claims indicated the job market remains stable. Though the overall increase in wholesale prices was in line with what economists had projected, details in the Producer Price Index suggested some of the recent slowing of inflation is being undone as renewed hostilities in the Middle East crimp global oil distribution and the surge in AI investment pushes up demand for electronics. Prices that producers paid for transportation and warehousing jumped in August, the data showed, as did prices for hospital services and airfares. A report on consumer price inflation due on Friday will fill out the inflation picture for Fed officials as they debate whether their policy rate is putting enough downward pressure on inflation to get it to their 2% goal. Inflation has run above the Fed's target for 5-1/2 years. The Fed has kept its policy rate in the 3.50%-3.75% range since December. "With the PPI data overall still looking relatively hot, the Fed seems likely to hike this year even if it doesn’t pull the trigger this month," Capital Economics analysts wrote. As for whether the central bank moves next week, they said, "that still depends on the more important core CPI figure tomorrow." The Fed targets 2% inflation by 12-month change in the Personal Consumption Expenditures Price Index, a data point that can be estimated once CPI and PPI data are in hand. Analysts were divided on Thursday over whether PPI data would push PCE inflation into a range high enough to force the Fed to move next week. Before Thursday's data, traders had seen about a 65% chance of a quarter-point rate hike at the Fed's September 15-16 meeting. That probability is now seen as closer to 70%, based on the price of Fed funds futures contracts traded at CME Group. By year-end, the Fed will almost certainly have delivered one, if not two, interest-rate hikes, market prices imply. The European Central Bank raised its key interest rates earlier on Thursday to stem inflation arising from the Iran war, which has pushed Brent oil futures prices above $100 a barrel.

Fed, eyeing inflation data, may lean toward a hike, traders bet

Traders price a higher chance of a Fed hike

Inflation and labor data keep rate move in focus

CPI remains the key input for next week's decision

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