Key facts
- US inflation remained steady at 3.4% in August, well above the Fed's 2% target.
- Market expectations for a Federal Reserve rate hike at the upcoming meeting surged to 90%.
- The Fed last raised rates three years ago to combat post-pandemic inflation.
- Current Fed rates stand between 3.50% and 3.75%.
- Oil is trading above $100 per barrel, with Brent crude briefly topping $108.
Markets are anticipating a quarter-point interest rate increase at the Federal Reserve's upcoming meeting, with the probability now at 90% following the release of August's Consumer Price Index report and a surge in oil prices. The CPI report indicated that inflation remained steady at 3.4%, significantly above the central bank's long-term target of 2%.
The recent spike in crude oil prices, with Brent crude briefly topping $108 per barrel, is adding to inflation pressures. The conflict in the Middle East is seen as a key driver, with analysts warning that energy prices may not see relief soon. This situation puts the Fed in a difficult position, balancing the need to control inflation with the risks of slowing economic growth.
ING analysts expect the Fed to hike rates as the August inflation reading remains well above target. Higher oil prices have also driven up U.S. fuel costs, with diesel hitting an all-time high of $6 per gallon last week and gasoline averaging $4.3120 per gallon. The European Central Bank also recently hiked its rates by 25 basis points.