August Core CPI was 6.30%, ahead of the Cleveland Fed’s 6.25% estimate (table below), and up from July’s 5.90% print. Headline CPI was 8.30%, down from July’s 8.50% print given oil’s retreat, but ahead of the Cleveland Fed’s 8.24% estimate. Our view is that with Core CPI at 6.30%, the Fed will likely raise by 75-100 BPS when the FOMC meets on September 20th-21st. We expect Treasury yields to move significantly higher in the coming months as macro economic risk factors increase.

We focus on Core CPI to gauge what the Fed may be thinking in terms of rate hikes. We believe the Fed would be wise to increase the Fed Funds Rate target range by 100 BPS, from 2.25-2.50% to 3.25-3.50% given that:

1. Core CPI is moving higher;
2. The Fed did not increase the Fed Funds Rate target range in August;
3. The 2-Year Treasury yield stands at approximately 3.58% (the 2-Year Treasury yield has increased in each of the last three sessions). We expect Treasury yields to move significantly higher as macro economic risk factors increase.

• Read the Bureau of Labor Statistics’ CPI press release HERE.

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