The U.S. Department of Labor released August’s Consumer Price Index (CPI), which rose 3.4 % from a year ago and met market expectations. In particular, the core CPI—excluding energy and food—rose 0.3 % from the previous month, slightly outpacing the 0.2 % predicted by experts. This has made the possibility of an interest‑rate hike by the U.S. central bank (Fed) visible.
According to a Chicago Mercantile Exchange (CME) analysis, the probability that the Fed will raise rates by 0.25 percentage points at the July Federal Open Market Committee meeting on the 16th climbed to 88.7 %. This is an increase of 11.2 % points in one day after the previous day and adds another 16.3 % points.
Price rises, especially from higher energy costs and service‑sector spending, have driven U.S. Treasury yields up beyond 5 %, reflecting this trend.
The extension of conflict in the Middle East and Saudi Arabia’s reduction in crude‑oil exports have added volatility to energy prices. According to an OPEC report, Saudi’s crude‑oil production for August was 3.03 million barrels a day—a drop of about 33 % from the previous month—accelerating overall inflation.
The possibility that the ECB may hike rates also exerted downward pressure on U.S. Treasury yields. President Donald Trump’s comments that he will expand fiscal stimulus and his worries over rising prices added uncertainty to markets. Together, investors already expect the Fed’s rate‑hike cycle to have started.
Immediately after the CPI release, U.S. 10‑year Treasury yields spiked then settled down. Jeff Sultz of Franklin Templeton said “investors in equities and bonds already anticipate the Fed’s rate‑hike cycle; it is reflected in the market.” This shows that rising prices increase volatility in financial markets, add uncertainty to the economy, and make a Fed rate hike a likely possibility.