August CPI In Focus As Rate Hike Odds Fall To 38%

The odds of a rate hike in September have fallen to 38% on Polymarket after Federal Reserve Governor Christopher Waller stated that his decision will depend on the upcoming August consumer price index (CPI) report.

Bitcoin (BTC) registered a sharp increase following Waller’s comments and reclaimed $80,000. The flagship cryptocurrency is up over 4%, trading around $81,271.

September Interest Rate Hike Odds Fall To 38%

Waller stated that cooler August inflation data could convince him to support holding interest rates steady at the upcoming Federal Reserve meeting. The Federal Reserve governor said inflation levels were moving toward the 2% goal, and employment was near its maximum sustainable level. However, Waller gave the CPI report more weight, stating that he does not expect the employment report figures to differ much from recent labor data.

Instead, he gave more weight to the August inflation report in deciding whether he will support keeping interest rates steady or increasing them from their present range.

“If there is continued progress toward our 2 percent goal, then I am willing to support holding the policy rate at its current level.”

Waller added he would consider supporting a hike if inflation numbers crept higher, adding that the Fed’s current policy stance gave the Fed some wiggle room as it only slightly restricted demand.

“If there is evidence that progress toward 2 percent inflation reversed in August, a small adjustment in our stance would help ensure that it resumes.”

Waller stated that explaining how the data could affect his decision allows investors, companies, and households to prepare for different policy outcomes. He supported the Fed’s decision to leave interest rates unchanged at the July policy meeting, explaining that the economy remained robust and showed early signs of disinflation.

Key Data Releases

The United States Bureau of Labor Statistics will release the August Producer Price Index (PPI) on September 10, and the Consumer Price Index on September 11, less than a week before the Fed’s decision on interest rates. The timing of the release gives policymakers a very small window to assess whether numbers continued easing in August.

The Personal Consumption Expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge, rose 3.7% compared to the previous year and remains above the 2% target. The US-Iran conflict has added further uncertainty about upcoming data.

Federal Reserve Chair Kevin Warsh stated following the Jackson Hole meeting that inflation remained above the central bank’s target. CME FedWatch put the odds of a rate hike before Waller’s comments at 66%, after which the odds were revised to 50%.

Fed Officials Open To Rate Hike

However, Waller’s colleagues remain open to a September hike. Federal Reserve Governor Stephen Barr said in a September 1 speech that inflation had been higher than acceptable levels for over five years. Price growth fell from over 7% in 2022 to just over 2% in 2024, but stalled in 2025 as tariffs, the geopolitical situation in the Middle East, and AI spending pressured the economy.

According to Barr, Fed officials would act decisively and raise interest rates if they felt inflation remained high.

Federal Reserve officials were deeply divided over interest rates at the July FOMC meeting, with Beth Hammack, Neel Kashkari, and Lorie Logan favoring a 25-basis-point increase. Energy remains an area of concern for officials, with Brent crude climbing above $90 after renewed hostilities around the Strait of Hormuz, reigniting supply chain concerns. A jump in crude prices could have a domino effect on transport, production, and consumer costs.

Lower Odds Boost Bitcoin, Crypto

Odds of a rate hike rose to nearly 50% on Polymarket earlier in the week before falling to 38% following Waller’s comments. Meanwhile, expectations of no rate cuts following the upcoming meeting rose to 63%.

However, traders on Polymarket believe there will be at least one rate hike in 2026, with a separate contract putting that probability at 64%. Crypto investors will be watching any developments related to the decision on interest rates, which can affect demand through various avenues such as regulated investment products, Treasury yields, and the dollar.

Higher yields reduce demand for volatile assets like Bitcoin and increase it for interest-bearing money-market instruments and government debt.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.