The August CPI print is the last major inflation reading the Fed will see before its September 15–16 FOMC vote
A hotter-than-expected core inflation reading in August has hardened expectations that the Federal Reserve will raise interest rates at its September 15–16 policy meeting.
The Bureau of Labor Statistics (BLS) reported Friday that the consumer price index (CPI) rose 0.4% in August from the prior month, placing the 12-month rate at 3.4%, unchanged from July.
The more closely watched core reading, which excludes food and energy, climbed 0.3% for the month, a tenth of a percentage point above economists' consensus forecast.
The core annual rate held at 2.4%, well above the Fed's 2% target.
Sam Williamson, senior economist at First American, said the inflation increase opens the door for the Fed to raise rates next week.
"The firmer core reading puts another thumb on the scale toward a Federal Reserve rate hike next week," Williamson said. "With the labor market still on solid footing, policymakers have room to lean harder against inflation. That would likely keep borrowing costs elevated in the near term as markets price in a higher path for interest rates."
Energy and shelter drive headline inflation higher
Gasoline was the primary catalyst behind the monthly gain. The BLS noted that "the index for gasoline rose 3.9 percent in August, accounting for over one third of the monthly all items increase."
Shelter costs added 0.3%, transportation services rose 0.5%, and used vehicles gained 0.4%, a broad-based advance that underscored the persistence of price pressures.
Those numbers landed against a strained wage backdrop. Real average hourly earnings fell 0.1% from July to August, according to a separate BLS release, and were down 0.3% year-over-year. That means households absorbed further price increases without corresponding income gains.
President Trump threatened Friday to cut off trade with countries the US runs a deficit with, unless the Federal Reserve lowers interest rates.https://t.co/O2n4ibQAU5
— Mortgage Professional America Magazine (@MPAMagazineUS) September 8, 2026
Fed meeting now squarely in play
The August CPI print is the last major inflation reading the Federal Reserve will see before its September 15–16 Federal Open Market Committee (FOMC) vote.
With mortgage rates already hitting a 15-month high ahead of the release, markets had largely pre-positioned for a hot number.
Economists at Citigroup had already flagged the stakes, writing that "the fate of the September meeting lies with August CPI."
The CME Group's FedWatch tool placed the probability of a rate hike at 84.7% as of Friday morning, from approximately 70% on Thursday, while long-term bond yields held broadly steady after the release.
Stephen Brown, chief North America economist at Capital Economics, was unequivocal. "The upside surprise to core CPI in August means the Fed looks set to hike next week," he said.
Melissa Cohn, regional vice president at William Raveis Mortgage in New York and a 44-year industry veteran, has argued that a rate increase may not be bad news for borrowers.
"I think it would be prudent if they hike rates, and I think the bond market would react favorably, bond yields would go down, and mortgage rates would go down," she previously said.
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