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Today might be a huge day since new inflation figures will be announced
The Fed was forced to raise interest rates so aggressively this year because of rising inflation indicators during the last year or two, which has roiled markets and contributed to the worst first half of a year for equities in nearly five decades.
The Consumer Price Index (CPI), which analyses the prices of a basket of daily consumer goods and services, is a primary method that investors, economists and policymakers use to evaluate inflation. The amount presented illustrates how much the price has changed year over year. This year's CPI has risen dramatically.
The CPI was 9.1% higher in June (published in mid-July), spooking investors and making them question how active the Fed would have to be with rate rises to bring inflation down. But in July (published in mid-August), the CPI came in approximately 8.5% higher year over year and remained flat from June monthly, providing some relief to the market. The dip was led by a significant drop in energy and gasoline costs, which had been climbing all year.
Stocks rose following the July report on the notion that inflation had peaked but since then, there have been a lot of Fed remarks and contradicting data points, creating a topsy-turvy market. The Fed remains on pace to raise its benchmark overnight lending rate by 0.75% at its meeting later this month, marking the third such expedited step in a row.
The major issue today is whether the August CPI data, which was announced on Tuesday, will give more evidence that inflation has peaked and is now moving lower, or whether it will put a kink in the market and cause inflation to rise.
Many economists appear to believe that the statistics will be favourable. In a recent research note, Morgan Stanley (MS) analysts predicted that headline inflation would fall and come in at 7.9% higher year on year in August, representing a significant improvement. This reduction is likely to be led once again by a drop in energy costs.
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