Markets are bracing for a Fed rate hike as soon as next week, with traders pricing in a 70% chance of a move in September. The big catalyst? Friday’s US inflation report (CPI) could be the deciding factor for the Fed’s next step.

CPI Report Is the Key Trigger

The consensus for August CPI points to a modest increase: the median forecast for August CPI is 0.22% month-over-month. All 17 major banks have their estimates tightly bunched between 0.16% and 0.24%—basically, about +0.2% MoM.

PPI and Core PCE Put Upward Pressure

PPI components that feed into core PCE have come in strong, so even a “normal” CPI print could push August’s core PCE inflation higher—the metric the Fed really cares about.

September Fed Decision Hinges on CPI

With the market already baking in a 70% chance of a hike, the September rate path will largely hinge on the actual CPI numbers. Any deviation from consensus could shake up expectations heading into the meeting.