U.S. CPI meets expectations

Headline Inflation Holds at 3.4%

The latest US inflation data, released by the Bureau of Labor Statistics on September 11, 2026, showed headline consumer prices rising 3.4% year-on-year in August, landing exactly in line with market expectations. The August 2026 CPI report showed headline inflation at 3.4% year-over-year, which remains above the Fed's 2% target and affects interest rate expectations.

The monthly core reading, which strips out volatile food and energy prices, came in at 0.3%, above the 0.2% consensus forecast. Core CPI at 0.3% or higher could push the Fed to raise rates, while a cooler 0.2% print may reopen the door for stocks. The hotter-than-expected core print is seen as a critical signal for policymakers heading into the Federal Reserve's September 15-16 meeting.

Fed Rate Hike Odds Jump to 80%

The stronger core reading has shifted market expectations sharply in favour of a rate increase this month. Markets are now pricing in roughly an 80% probability that the Fed lifts rates at its upcoming meeting. Strategists at Brown Brothers Harriman emphasize that the August CPI release is "the main market driver that will decide the Fed's September 16 rate decision," arguing that "a hot CPI print would all but seal a September hike."

Crude oil prices climbing above $100 per barrel reignited inflation worries, while the US economy generated 162,000 jobs last month, exceeding forecasts and alleviating some concerns that another rate hike might undermine the labor market. Together, those factors have given the Fed room to act.

Fed Governor Christopher Waller has outlined a conditional reaction function, explaining that a steady policy rate is preferred if August inflation shows continued progress, yet even a modest upside surprise could trigger a "small adjustment" higher. Waller reiterated that inflation remains "significantly elevated" and that it may not take much acceleration to justify a hike.

The Fed targets 2% inflation over the longer run, measured using the PCE price index rather than CPI. With headline CPI still running 140 basis points above that goal and core momentum picking up on a monthly basis, the pressure on policymakers to act is building ahead of next week's decision.

Sources:
FXStreet: US CPI data and Fed September rate decision outlook
CNBC: Wholesale prices rose 0.4% in August, as expected
IndexBox: August CPI Preview ahead of Fed September rate hike decision