The Bureau of Labor Statistics released its Consumer Price Index (CPI-U) report today, showing inflation remains a bit hot, up 0.4% on a seasonally adjusted basis in August after rising 0.1% in July. Over the last 12 months, the index rose 3.4% before seasonal adjustments ending in August, as it did for the 12 months ending in July.
Removing food and energy, inflation rose 0.3% after a 0.2% increase in July.
Most observers pointed to the ongoing conflict in the Middle East, which has driven oil prices higher. Recently, oil topped $100 a barrel, and diesel was hitting highs as well. Oil costs affect all prices.
All of this raised the probability of a rate hike after next week’s Fed meeting. The probability of a September increase now stands at around 88%, up from 68%. The probability of a December hike also jumped to 82% from 63%.
CI received market feedback from insiders following the release.
Lewis Huang, an analyst at Bitget, said the numbers show a divergence between headline and an accelerating cost of energy while core inflation eases.
“That gives the Fed some room to look through the headline increase, leaving the September decision dependent on the broader balance of inflation, labor-market and financial conditions. For crypto, the print provides less of a directional catalyst from rates. Bitcoin holding above $76,270 would suggest that underlying demand remains resilient despite uncertainty around the rate path.”
Theo Chief Investment Officer Iggy Ioppe said the in-line 0.4% read is the quiet one, adding that “implied vol bleeds out” with gold tightening and carry compressing. “After gold moved 2.5% on one Fed sentence, an on-consensus print does the opposite; it takes the premium out.”
Martin Lee, Market Insights Lead at DWF Labs, says:
“Markets went into this priced at roughly 70-30 for a September hike on CME FedWatch, and 60-40 on Kalshi and Polymarket. A hotter print pushes those odds up and risk assets adjust down with them,” says “What’s notable is that positioning was flat going in, with no significant skew either way and coin-denominated open interest that hadn’t built. So this is a straight repricing rather than a liquidation cascade, and the move should be more orderly than a print this size would normally produce.”
Markus Levin, co-founder of XYO, one of the first crypto companies to complete an SEC-qualified Reg A offering, sees a 25-basis-point hike in September as the base case.
“Headline CPI rose 0.4% month-over-month and core CPI rose 0.3%, with core running slightly hotter than the 0.2% expected. That is not a major inflation shock, but it is enough to make a September hike difficult for the Fed to rule out. I expect the Fed to hike once and then pause rather than begin a sustained tightening cycle.”
Levin believes that Bitcoin has already priced in higher rates, so an in-line print is better than an inflation surprise.
“I would watch Treasury yields more closely than the CPI headline from here. If yields stabilize or fall, Bitcoin has room to rebound even if the Fed delivers a 25-basis-point hike. If wider sentiment changes to more than one expected hike this year, then we can see its impact on crypto prices and maybe a more prolonged bear market. “
Levin added that a rate increase will pressure the AI sector as buildout costs rise, compelling AI firms to show that spending is delivering returns.
Joel Kruger, Global Markets Strategist at LMAX Group, anticipates “greater potential for an outsized move in risk assets to the topside should the Fed ultimately fail to deliver on these hawkish expectations.”
Matthew Ryan, Head of Market Strategy at Ebury, said today’s US August CPI report was a “modest upside surprise” that limits next week’s ambiguity.
“The firmer core print suggests underlying price pressures remain stickier than the disinflation narrative implies, and should, we think, be just about enough to sway the committee’s naysayers toward a hike. The decision itself is set to be a close call, however, and the doves on the committee will not be without ammunition. They will likely point to annual core inflation having now fallen for three straight months, with no clear signs of second-round effects.”
Ryan says that a hike will deepen the sell-off in the debt market. As well, he sees a need for the Fed to preserve its “inflation-fighting credibility.”
The dynamic between the White House and the Fed is interesting. For some reason, the President believes the Fed controls interest rates when the market does. This puts newly appointed Fed Chairman Kevin Warsh in a bit of a pickle. Upset the boss or do what everyone else wants him to do. Warsh has already held rates steady for two meetings. Things may change at next week’s meeting.