US equities are at fresh session lows with the S&P 500 now down 3% and the Nasdaq off by 3.8%. It's an ugly day and comes with the market pricing in higher rates.
CIBC hasn't changed its calls but flagged the chance of a more-aggressive Fed.
"Americans saved on gasoline, but paid more for just about everything else in August. The result was that core inflation was red hot, raising the odds that that the Fed will consider either a 100bp move at next week's FOMC, or a higher terminal rate than 4%," economists at CIBC wrote.
Looking deeper at the report, they note that a variety of core measures were particularly hot.
"There were broad-based advances in core categories that weren't expected in August, as health insurance and dental service prices accelerated, adding to strong increases in car insurance and car repair costs, along with new car prices. The increase in new car prices was unexpected given the fading of supply chain issues in that industry, and the impact of higher borrowing costs on demand," they wrote.
The market is now pricing in a 19% chance of a 100 bps hike next week with the terminal rate now at 4.30% in March.
"We'll admit that this data was far enough above our expectations to have at least some consequence for our Fed call. We were looking for a 75 bp point September move and a peak of 4%, and while softer economic reports still suggest that the Fed will have to pause by year end, either a 100 bp move in September, or a peak of 4.25%, are more in play than we thought ahead of these data," CIBC writes.
The US dollar is edging back towards the highs of the day and has reached them versus CAD and AUD as oil falls to a session low at $85.83.
