Higher-than-expected US inflation numbers have cleared the runway for the Federal Reserve to deliver another big rate hike—a realization that has sent markets into shock.
Why it matters: Markets are now pricing in a near-certain 0.75 percentage point increase from the Fed next week, which sent the S&P 500 Index crashing down 3%.
- The US Dollar Index was up 1.1% since higher rates mean more investor money flowing into the US, meanwhile the Canadian dollar, euro, and pound all declined.
What happened: Higher food and rent prices lifted the US consumer price index 0.1% last month (the opposite of what economists expected) and 8.3% from this time last year.
- That’s well above economist expectations (as well as the Fed’s 2% inflation target), but a slight fall from July, thanks to lower prices at the gas pumps.
- Another worrying development: core inflation (which excludes some food items and energy) was almost double estimates, Corpay’s chief market strategist told Reuters.
In Canada: What the Fed does matters because the Bank of Canada’s decisions are partly driven by what’s happening south of the border, since both economies are closely linked.
Zoom out: The strength of the US dollar matters too. As the dominant currency in global banking, the growing demand for greenbacks has started to throw other currencies (and economies) out of wack.