US CPI in Focus as Markets Weigh September Fed Rate Hike
US inflation returns to the centre of the market conversation today, with investors looking to the latest Consumer Price Index (CPI) report for clues on what the Federal Reserve might do in September. Economists expect headline inflation to ease slightly to 3.4% year on year in July, from 3.5% in June, while core CPI, which excludes food and energy, is forecast to slow to 2.5%. On a monthly basis, headline prices are expected to rise 0.1%, with core prices increasing 0.2%.
The importance of today’s report comes from how finely balanced expectations for the next Fed meeting have become. Markets are currently assigning roughly equal odds to the Fed keeping rates unchanged or raising them by 25 basis points in September. This leaves investors particularly sensitive to any surprise in the inflation figures. A reading broadly in line with forecasts could ease some concern over persistent price pressures, while an upside surprise would strengthen the argument for another rate increase.
There are also reasons to look beyond the headline number. Lower petrol prices are expected to have helped contain inflation in July, with average US gasoline prices falling to $4.064 per gallon from $4.184 in June and $4.609 in May. Core inflation is expected to remain relatively subdued, although economists anticipate some upward pressure from categories including used vehicles, education, communication goods and airfares.
Energy remains an important complication. Oil prices have moved higher again as geopolitical tensions intensify, with Brent crude trading close to $90 per barrel ahead of the CPI release. Today’s report largely reflects price conditions during July and therefore will not fully capture the more recent increase in energy costs. This means a softer headline number would not necessarily settle the inflation debate, particularly if higher oil prices begin feeding through to transport and other costs in the months ahead.
For markets, the real question is whether today’s numbers are strong enough to change expectations around September. CPI is not the Fed’s preferred measure of inflation, with policymakers placing greater emphasis on the Personal Consumption Expenditures Price Index. The Fed will also continue to assess labour market conditions and broader economic activity. Still, with expectations for the next meeting finely balanced, today’s inflation report could quickly shift the market’s view of the likely policy path.
US Dollar Holds Steady Ahead of US CPI Release
Source: TradingView. Past performance is not a reliable indicator of future performance. Data as of 12 August 2026.
The US Dollar Index is trading around 99.86 ahead of the latest US inflation report, with investors waiting to see whether the data shifts expectations for the Federal Reserve’s September policy decision.
The market reaction is unlikely to be limited to the US Dollar. A hotter than expected CPI report could support the dollar and push Treasury yields higher as investors increase expectations of a September rate hike. Gold may face pressure if yields rise, while equity markets could become more cautious if investors anticipate tighter monetary policy. A softer inflation reading could produce the opposite reaction, particularly if it pushes markets more firmly towards expectations of a September pause.
Today’s report will not settle the Federal Reserve debate on its own. Investors will still have further inflation, employment and economic data to assess before the September meeting. What the CPI release could do, however, is break the current balance in market expectations and provide a clearer indication of whether the Fed’s next move is more likely to be another rate increase or an extended pause.