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September 17, 2018 — Underlying Inflation Pressures Eased in August

SEPTEMBER 17, 2018 – UNDERLYING INFLATION PRESSURES EASED IN AUGUST

The US Consumer Price Index increased 0.2 percent in August after a similar rise in July.  In the 12-months through August, the CPI is up 2.7 percent, down slightly from a 2.9 percent rise in July.

As declines in healthcare and apparel costs offset rising rents and gasoline, it appears inflationary pressures may be slowing.  But if we add a tightening labor market and the recent robust economic growth into the equation, the inflation rate is likely not pulling back.

It’s generally agreed the FOMC will hike the Fed Funds rate by 25 basis points at their September 26 meeting, when short-term rates will rise to the 2-2.5 percent level. The 10-year treasury yield rose briefly to 3 percent Friday, a metric linked to many business loans, and fed funds futures reflect an 80 percent of a hike in December.  If you are considering using a hedge against an anticipated rises in interest rates, it’s not too late to lock into a swap ahead of the announcement.