Core Inflation Was Higher Than Expected in August

Rates rise on inflation day. This morning’s inflation print provided a volatile session as rates soared from intraday lows to their highest levels immediately after the data release. Rates then plummeted back near pre-CPI lows, only to rise throughout the remainder of the session to close 1-5bps higher. Today’s inflation figures were digested as further evidence that the Fed will only cut rates by 25bps at next week’s FOMC meeting. Tomorrow’s Producer Price Index (PPI) figures could spur another volatile session, especially given the forecast that core month-over-month PPI will rise to 0.2% in August from 0.0%.

Core inflation climbs slightly in August. August CPI data released today showed that inflation was unchanged across most measures compared to July. However, core inflation climbed from 0.2% to 0.3% month-over-month, the largest monthly increase since April. In addition, 3-month annualized core inflation climbed from 1.6% in July to 2.1%. Headline CPI growth remained unchanged at 0.2%. On a year-over-year basis, headline CPI growth fell from 2.9% to 2.5% while core CPI growth was unchanged at 3.2%.

Fed proposes a cut to capital requirement thresholds for large US banks. The Fed’s initial proposal for an increase in capital requirements for banks over $100B in total assets was met with widespread criticism. JPM’s Jamie Dimon argued that the framework would “create even more risk in the financial system… banks would be limited in their ability to deploy capital in the times we’re most needed, and the rule will have a harmful ripple effect on the economy…” In response to the pushback, Fed Vice Chair for Supervision Michael Barr announced (yesterday) a new outline that trimmed the capital requirement increase for GSIBs to only 9% from 19%. Barr added that the projected impact on non-GSIBs would be a 3%-4% increase over the long run.