Investors More Confident about a Federal Funds Target Rate Hike Next Week
September 11, 2026
Although U.S. August consumer price data could have been worse, the report packed enough warning signs to leave investors more convinced that the FOMC will raise its interest rate target for the first time since July 2023. The overall CPI index increased 0.4% month-on-month, most since April, and a core CPI increase to 0.3% above July’s level exceeded expectations of a 0.2% uptick. On-year inflation matched July’s 3.4% reading, and core inflation of 2.4% merely met expectations. Service sector price inflation of 3.1% failed to recede further. A rise of gasoline prices of 3.9% versus July and 27.4% year-on-year was the most inflationary part of the economy. The long interval of above-target inflation dating all the way back to March 2021 has no near-term end in sight in light of the dismal news from the Middle East and threatens to unhinge long-term inflation expectations if not addressed more forcefully. ECB President Lagarde called this week’s decision to enact a second interest rate hike “a no-brainer,” and the Bank of Japan appears poised to make another hike in its policy interest rate, which already has been increased by 110 basis points from its prior cyclical low. Among the Group of Seven economies, the U.S. currently joins the Bank of England and Bank of Canada as the only ones that haven’t tightened their stance. Yesterday’s PPI already made a turning point look overdue.
The dollar fell overnight by 0.6% against the yen, 0.4% relative to the kiwi, and 0.1% versus sterling but rose 0.2% against the loonie and Swiss franc. The euro remained steady.
The price of Bitcoin rebounded 2.9%, and gold and silver are up around 0.6%.
Thursday’s very steep jump in the price of oil was trimmed today, with Brent and West Texas Intermediate crude falling by somewhat more than 3%.
The prospect of Fed action brought some relief to longer maturities. The 10-year U.S. Treasury yield retreated four basis points overnight, whereas comparable yields in Japan, Switzerland, and Germany are up by 6, 2 and 1 basis points.
A bad week for equities ended with further losses in the Pacific Rim with Friday drops of at least 0.9% in Japan, China, Taiwan, Australia, New Zealand and South Korea, but North American and European markets have seen a respectable bounce with the additional support of some good corporate earnings news.
Late yesterday came news that officials at the Central Reserve Bank of Peru had again left their reference interest rate unchanged at 4.25% where such has resided for the past year. Previous reductions of 100 basis points in 2023, 175 bps in 2024 and 75 bps last year had been made, but Peruvian consumer price inflation of 4.1% remains above target even as geopolitical tensions and El Nino concerns persist.
Likewise, the Central Bank of Russia’s scheduled policy review paused a streak of ten previous interest rate cuts totaling seven percentage points from 21% in June 2025 to 14% currently. A released statement notes
Main pro-inflationary risks are associated with the supply-demand imbalances, driven by higher domestic demand and a longer contraction of production capacities in certain industries. Elevated inflation expectations may intensify the pass-through of costs to prices. n July, the current seasonally adjusted price growth equalled 11.6% in annualized terms compared to 5.3% on average in 2026 Q2. The similar indicator of core inflation rose to 7.0% from 4.6% on average in 2026 Q2.
Inflation aggravated by the Middle Eastern conflict has eroded U.S. consumer confidence quite significantly. The U. Michigan/Reuters index dropped much more sharply than predicted in September from 55.4 in July, then 51.5 in August and then 45.8 early this month. President Trump’s prediction of a steep drop in world energy costs soon after U.S. mid-term elections isn’t attracting a lot of trust, since his earlier pronouncements about the war have proven woefully overoptimistic.
Several British data were reported today, including faster than expected GDP growth, a rise in industrial production that pundits were expected to fall, and the smallest goods and services trade deficit in a half year.
- Monthly GDP grew 0.4% in July and 1.6% from a year earlier. Average growth over the latest three months was only 0.4%, however, just half the advance in February-April.
- Led by a 0.9% increase in factory output, industrial production rose 0.2% in July and by 0.6% year-on-year.
- The July goods and services trade deficit of GBP 3.45 billion was down from GBP 5.54 billion in June. Among only goods, the trade gap of GBP 20.97 billion was also its smallest in six months. Britain has a chronically high current account shortfall that averaged 3.0% of GDP over the three years through 2025.
The German current account, in contrast, sported a EUR 21.2 billion surplus in July versus EUR 17.1 billion a year earlier. In spite of tariff tensions, the year-to-date current account surplus (EUR 127.6 billion) was 2.7% wider than a year earlier.
Japanese producer price inflation of 7.6% last month exceeded expectations. Import prices soared 24.0%.
On-year growth Turkish retail sales during July was at a 16-month low, and a 0.3% 12-month rate of decline in industrial production was the third negative reading in a row.
Swiss consumer confidence in August (-33) was the least pessimistic in since -30 in January and February versus an 8-month low of -43.3 in May.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: British GDP and industrial production, Central Bank of Russia, Central Reserve Bank of Peru, U.S. CPI
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