increased by the most in 14 months in August as gasoline prices surged, but the annual rise in underlying inflation was the smallest in nearly two years.
Stickiness in services inflation has kept alive prospects of a November hike. Interest rate traders now see a 97% chance of the Fed holding rates in September, and a 61% likelihood of a pause in November, according to the CME FedWatch Tool. "I don't think the Fed wants to throw a shock and do a 25-basis-point hike when the expectations are that they won't, but rate hikes are not completely off the table for the rest of the year," said Victoria Fernandez, chief market strategist at Crossmark Global Investment.
Gasoline prices, which have stoked inflation worries, peaked at $3.984 per gallon in the third week of the month, compared with $3.676 per gallon during the same period in July.gained 1.3%, with the traditionally defensive sector's rally hinting at investor nervousness ahead of producer price and retail sales data on Thursday, which could influence the Fed's Sept. 20 policy decision.
"That is somewhat of a red flag, it points to skittishness among equity holders, and that's not necessarily unexpected," said Keith Buchanan, a portfolio manager at GLOBALT Investments in Atlanta.
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