August Core CPI Rises 0.3%, Adding Pressure on Fed to Raise Rates

The August inflation report emerged as a crucial indicator for markets after Fed Chair Kevin Warsh warned two weeks earlier that policymakers could be forced to respond if price pressures did not ease soon.

U.S. consumer prices rose broadly in line with expectations in August, but the stronger-than-expected increase in core inflation kept the possibility of a Federal Reserve rate hike next week firmly in focus.

The Consumer Price Index climbed 0.4% from the previous month, matching the 0.4% forecast and accelerating from July’s 0.1% increase. On a yearly basis, headline inflation held at 3.4%, matching both expectations and July’s reading.

Core CPI, which excludes food and energy prices, increased 0.3% month over month. That topped the 0.2% estimate and July’s 0.2% gain.

Annual core inflation came in at 2.4%, matching forecasts while declining from 2.5% in July.

Bitcoin fell sharply following the release, briefly dropping to about $76,700.

The two-year Treasury yield increased six basis points to 4.61% as traders priced in an almost 100% chance of a Fed rate increase at next week’s meeting. The 10-year yield remained unchanged at 4.95%.

Nasdaq 100 futures climbed as much as 0.8%, reaching a session high.

The CPI report had already become a major focus for investors following Warsh’s comments at Jackson Hole. His remarks suggested the Fed might need to act if inflation failed to show signs of slowing.

Since then, bond markets have undergone a significant repricing. Expectations shifted from no further rate hikes, potentially through the remainder of 2026, toward the possibility of as much as 75 basis points of additional tightening this year.

The change in expectations pushed the 10-year Treasury yield from roughly 4.60% to just below 5.00% before the CPI release. The two-year yield, which is more sensitive to anticipated Fed policy, also rose from 4.20% to 4.56% ahead of the report.