Economists say the Federal Reserve may have to speed up its interest rate hike campaign to combat soaring prices, after August consumer inflation turned hotter and more widespread than expected. Stocks tumbled Tuesday morning, the dollar rose and bond yields edged higher after the consumer price index was reported to have gained 0.1% instead of a 0.1% drop, as predicted by the U.S. Securities and Exchange Commission. economists surveyed by Dow Jones. The report dampened market views that inflation is cooling, and so the Fed could pause rate hikes early next year. The Fed was widely expected to raise rates by 75 basis points on September 21, three quarters of a percentage point, but now the market is pricing in 16% odds that the central bank has can raise its target interest rate even higher. percent score. There are also expectations that the Fed may have to keep raising rates big in November and December, instead of bringing them back to the half-point and quarter-point. Nomura economists on Tuesday said they now expect a 100 basis point rate hike next week following the August inflation report. A basis point is 0.01 percentage points. “The broad-based strength across both core goods and core services inflation monthly – suggests a range of upside inflation risks may be materializing,” the economists said. As a result, they expect the Fed to respond more aggressively. They now also expect a half point gain in both November and December. Previously, they had expected a half point for November but had expected the Fed to fall back by a quarter point in May. after. Energy prices are expected to fall 5%, driven by a 10.6% drop in gasoline prices. But excluding food and energy, core CPI rose much larger-than-expected 0.6% from July and 6.3% from a year ago. Core inflation was 8.3% higher year-on-year, down from 8.5% in July but hotter than the 8.0% expected. Core inflation was much higher than the 5.9% annual rate in July. Nomura senior economist Rob Dent said the report showed inflation was surprisingly broad, with prices of everything from auto parts to medical services rising. “We’ve seen this tug-of-war between censorship goods and services remain strong. It’s not a tug-of-war. Both are moving forward,” Dent said. “Right now, I think the Fed is going to look at this with a lot of concern. There’s no good news in this report.” In the futures market, the predicted terminal interest rate for funds on offer has risen to 4.29% next April, from just under 4%, prior to the 8:30am CPI announcement. The final, or final rate, is the level at which the central bank is expected to stop raising interest rates. The loan interest rate range is currently 2.25% to 2.5%. “They can’t take 1 percentage point off the table,” said Diane Swonk, chief economist at KPMG. “They’re going to have to look at 1%…. This is the Fed doesn’t feel comfortable at all anymore. It’s completely authentic to its harsh talk…. They have reason in their view. That’s because inflation persists. Inflation is showing up in serious places.” Swonk pointed out that housing costs rose 0.7%, or 6.3% year-over-year, the biggest year-on-year increase. now and the trend is accelerating again. “Eggs are up almost 40% from a year ago. Food inflation is still there. You’re dealing with health and shelter costs.” Health services increased 0.8% compared to July. “Dental costs have spiked, but also hospitals,” she said. Swonk had expected a three-quarter point increase on September 21 and said the Fed would also review the August retail sales report, which takes effect on Thursday. She noted that the Fed wants to tighten policy as much as possible and quickly. She expects the loan rate to be at 4% by year-end. The Fed has recently stepped up its hawkish rhetoric, discouraging investors from expecting the agency to soon turn around to cut rates. The futures market has priced in a rate cut in the second half of 2023. “Honestly, I think it’s a game changer. Next week, I don’t think it’s a cut signal. I’m still leaning towards 75 because Aneta Markowska, chief economist at Jefferies, said inflation expectations have risen very strongly. . And I think there’s a high chance that they might have to continue at this pace in November and possibly slow it down by 50 in December. That brought us to 4.50% of the final rate. ” Markowska noted that some of the price increases are directly attributable to higher labor costs, such as accommodation and medical services. The fact that it is based on a wide range is worrying, she said. expected to decrease, instead to rise. “You would think we would see weaker prices. Retailers are raising prices. Not because they have to, but because they can. Demand is still very strong,” she said. “Furniture prices increased 1.1%. That’s the biggest level since March.” She said it would be difficult for policymakers to justify a pause at this point. becomes much more demand driven.