Core CPI Climbs 0.3% in August, Raising Odds of Fed Rate Hike

The August CPI report had become especially important after Fed Chair Kevin Warsh indicated two weeks earlier that the central bank could need to take action if inflation failed to ease soon.

U.S. inflation largely matched expectations in August, although core inflation came in above forecasts, keeping the possibility of a Federal Reserve rate hike next week firmly in focus.

The Consumer Price Index increased 0.4% in August, matching economists’ expectations and accelerating from July’s 0.1% rise.

On a year-over-year basis, headline CPI increased 3.4%, exactly matching both forecasts and July’s reading.

Core CPI, which excludes volatile food and energy costs, rose 0.3% from the previous month. That was above the 0.2% increase economists had expected and July’s 0.2% gain.

Annual core inflation reached 2.4%, matching forecasts but easing from July’s 2.5%.

Bitcoin slipped to around $76,700 in the minutes after the inflation data was released.

The two-year Treasury yield climbed six basis points to 4.61% as traders moved toward pricing in nearly a 100% probability of a Fed rate hike at next week’s meeting. The 10-year Treasury yield, which is less directly influenced by Fed policy expectations, remained unchanged at 4.95%.

Nasdaq 100 futures climbed to a session high, gaining 0.8%.

The August CPI report had already become a major focus for markets over the previous two weeks. Warsh’s comments at Jackson Hole suggested the Fed could be forced to respond if inflation did not begin slowing soon.

Since then, bond markets have undergone a sharp repricing. Traders shifted from expecting no rate hikes, potentially through the remainder of 2026, to positioning for as much as 75 basis points of tightening this year.

That shift pushed the 10-year Treasury yield from around 4.60% to just below 5.00% ahead of the CPI release. The more policy-sensitive two-year yield also climbed from 4.20% to 4.56% before the latest inflation figures were published.