I'm Jacob Sonenshine, filling in for Brian Sozzi. The Federal Reserve seems on track to hike interest rates by 25 basis points on Wednesday, Sept. 26, and while most people aren't questioning that it will there's a small chance the central bank won't. Even if it does hike rates for the third time this year, what are the chances it doesn't hike rates for a fourth time? For now, 10-year Treasury yield is hovering at above 3%, indicating the hike is priced into the bond market. Inflation has come on relatively strong for the most part this year, with the highest annualized inflation reading since before the crisis in August. But some things are happening that could put the rate hike at risk, so it's possible the market gets completely caught flat-footed.
The latest CPI reading in September was weak, at an increase of 2.7% year over year (different than the annualized rate), below expectations. That could give the Fed some pause, although most bond analysts and strategists are telling me there are enough other forces keeping the Fed on schedule. Wage inflation came in at an increase of almost 3% year over year in September's reading, the highest increase in nine years. One analyst told me that coupled with the weak CPI data that probably indicates more inflation is to come as consumers have more buying power.
OK, so we've concluded the slowdown in inflation isn't incredibly likely to slow down the Fed. But what about trade? If the trade war keeps getting out of hand the economy could get hurt, of course, and the Fed wouldn't want to be cooling the economy. Before Donald Trump's latest round of tariffs, a strategist told me the total sales at risk in the economy were about $20 billion, now just a tad higher, so that's not a huge number. That's equivalent to quarterly sales for some large companies. Here's the thing: We have no idea when President Trump is going to stop going down the path he's chosen. And China is strong-willed and will retaliate with tariffs of its own. Look, just don't go on auto pilot Wednesday. Watch the Fed.
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