The 0.28% m/m increase in core CPI in August appears to be consistent with a slightly below-target 0.15% m/m increase in the Fed’s preferred core PCE deflator measure. But we doubt that modest undershoot would be enough to tip the Fed’s hand in favour of a bigger 50bp cut next week. On balance, we still think the Fed will begin its rate cutting cycle with a more modest 25bp reduction.
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