Federal Reserve: Inflation data steer policy path – TD Securities

TD Securities economists Oscar Munoz and Eli Nir expect August Consumer Price Index (CPI) to prove subdued enough to keep the Federal Reserve (Fed) on hold in September, with the CPI-to-PCE translation also pointing to contained underlying inflation. They highlight Governor Waller’s preference to pause as long as the data allow, while warning that an upside inflation surprise could still trigger a rate hike.

Fed seen holding as data guide

"Governor Waller would rather keep rates on hold as long as inflation data allows him to do so. However, he emphasized the importance of the August CPI report."

"We expect CPI this week will prove subdued enough to keep the Fed on hold, but the PCE translation will be key."

"If our forecast materializes, core PCE would likely be a modest 0.18% m/m, with market-based an even more subdued 0.13%. This would be a welcome number for the more centrist members of the FOMC like Waller and Williams, and in our view, would be enough to keep the Fed on hold in September."

"We expect the Fed to remain on hold over our forecast horizon. Inflation should remain high for the rest of the year, and the labor market has stabilized, allowing the FOMC to shift focus to its inflation mandate."

"If the Fed were to move this year, we believe that move is more likely to be a hike than a cut."