The August CPI report became a critical data point for markets after Fed Chair Kevin Warsh suggested two weeks earlier that the central bank might need to intervene if inflation did not begin easing.
U.S. inflation broadly matched expectations in August, but stronger-than-expected core inflation kept the possibility of a Federal Reserve rate hike next week firmly in focus.
Headline CPI increased 0.4% in August, matching economists’ forecast and accelerating from July’s 0.1% gain. On an annual basis, inflation rose 3.4%, in line with both expectations and July’s reading.
Core CPI, which strips out volatile food and energy prices, rose 0.3% month over month. That exceeded the 0.2% forecast and July’s 0.2% increase.
Core inflation on a yearly basis came in at 2.4%, matching expectations while easing from July’s 2.5%.
Bitcoin reacted negatively to the report, falling to around $76,700 in the minutes after the figures were released.
The two-year Treasury yield climbed six basis points to 4.61% as traders moved closer to pricing in a nearly 100% probability of a Fed rate increase at next week’s policy meeting. Meanwhile, the 10-year Treasury yield remained steady at 4.95%.
Nasdaq 100 futures reached a session high, rising 0.8%.
The August inflation report had gained importance over the previous two weeks following Warsh’s comments at Jackson Hole. He indicated that the Fed could have to take action if inflation failed to show signs of cooling.
Bond markets have undergone a significant shift since then. Traders moved from expecting no rate increases, potentially for the remainder of 2026, to preparing for as much as 75 basis points of additional tightening this year.
The change in rate expectations pushed the 10-year Treasury yield from around 4.60% to just below 5.00% ahead of the CPI release. The more Fed-sensitive two-year yield also moved higher, rising from 4.20% to 4.56% before the inflation figures were published.
