The U.S. CPI report due at 20:30 on Sept. 11 is shaping trading ahead of next week’s Federal Reserve meeting. ABMedia said last month’s CPI rose only slightly because energy prices had declined, making tonight’s release the last major checkpoint for the market before the Fed decides whether to raise rates.
Markets are treating a 0.3% month-on-month rise in core CPI as the key dividing line. At the same time, Brent crude has moved above $110 a barrel, the U.S. 10-year Treasury yield has climbed to its highest level of 2023, and Bitcoin has fallen below $79,000.
Siegel says Warsh could face an internal clash if he does not hike
Wharton School professor Jeremy Siegel said on CNBC’s Closing Bell that Fed Chair Kevin Warsh would choose to raise rates. “Because if he doesn’t raise, there could be four votes, five votes, even six votes against him, and that would be unprecedented,” Siegel said.
The July Federal Open Market Committee meeting had already produced three dissenting votes. Beth Hammack, Neel Kashkari and Lorie Logan all voted in favor of a rate hike. ABMedia said that marked the largest number of dissenting votes faced by a new Fed chair early in a term since 1970. The report added that Warsh did not suppress those divisions and instead publicly accepted that committee members held different views.
Siegel said a hike would likely bring an initial wave of selling pressure. After that, longer-dated Treasuries could rise as investors conclude the Fed is serious about fighting inflation. Once the bond market stabilizes, he said, stocks could recover. For equities and crypto assets, that sequence points to an early shock followed by a wait for confirmation from bonds.
Oil’s latest surge is not directly part of tonight’s core CPI
Using data from the U.S. Energy Information Administration, the report said Brent crude averaged $91 a barrel in August, up from $84 in July. August was higher than July, but the strongest leg of the move came in September, when Brent rose to $110 in early September. ABMedia said that portion of the increase would only show up in the September CPI report due in mid-October.
Core CPI excludes food and energy, so the current level of oil prices will not directly enter tonight’s figure. Instead, any effect on core CPI would come indirectly through channels such as airfares and transportation costs, and that pass-through usually takes months.
The report also noted that the energy index fell 1.5% in July. From that base, August energy components had room to turn positive, but that would affect headline CPI rather than core CPI.
A 0.3% core CPI reading could push hike odds toward 90%
ABMedia laid out three broad scenarios for tonight’s data, all centered on the monthly change in core CPI.
- If core CPI rises 0.3% or more month on month, expectations for a September rate hike could be pushed toward 90%. Siegel said that 0.3% would make the committee lean toward tightening.
- If the reading comes in at 0.2%, in line with market consensus, inflation would appear broadly contained but not weak enough to end the rate-hike debate. In that case, the final decision would fall back to next week’s meeting.
- If core CPI slows to 0.1% or below, the market estimate for a hike could fall back to roughly even odds. Under that scenario, the institution cited in the report expects the Fed to stay put, though ABMedia said that would not mean the all-clear had been given. It would only give the rate-hike debate some room to breathe.
The report said a neutral outcome is the most likely, but the decisive point remains next week’s decision from Warsh.
Tom Lee keeps a bullish longer-term target for the S&P 500
Even with rate concerns hanging over markets, Fundstrat head of research Tom Lee kept a bullish view on the broader equity market.
He said the S&P 500 is currently trading at 19.5 times forward earnings, below its five-year average of 19.8 times. Using projected 2027 earnings per share of $415 and applying the average valuation multiple, the S&P 500 would point to 8,200. That is about 8% above the Sept. 10 close of 7,591.70.
At the same time, Lee expects the three major U.S. stock indexes to see a pullback of nearly 10% before year-end. The report listed several possible triggers: how the bond market prices Warsh’s new inflation framework, margin debt levels, the November midterm elections, and staged share unlocks involving SpaceX and multiple AI companies.