Economists say the Federal Reserve may have to intensify its campaign of higher interest rates to fight rising prices, after August consumer inflation proved hotter and more broad-based than expected. Shares fell sharply on Tuesday morning, the dollar rose and bond yields rose after the Consumer Price Index rose 0.1% instead of 0.1% as expected by economists polled by the Dow Jones. . The report improved the market’s outlook that inflation was cooling, and so the Fed would be able to halt its interest rate hike early next year. The Fed was already widely expected to raise rates by 75 basis points on September 21, three quarters of a percentage point, but now the market is pricing in the 16% odds that the central bank will raise its target rate even further. can increase more. Percent. There were also expectations that the Fed may have to continue with big rate hikes in November and December, rather than back them to half a point and a quarter point, respectively. Nomura economists said later on Tuesday that they now expect 100 basis points growth for the next week following the August inflation report. One basis point is 0.01 percentage point. “Broad-based strength in both monthly core goods and core services inflation — suggests that upward inflation could pose a range of risks,” the economists said. Therefore, they expect the Fed to respond more strongly. He now also expects a half-point increase in both November and December. He had previously expected half a point for November, but expected the Fed to return to a quarter point next month. As expected, a 10.6% drop in gasoline led to a 5% drop in energy prices. But excluding food and energy, the core CPI was 0.6% higher than expected in July and 6.3% higher than a year ago. Headline inflation was up 8.3% year over year, down from 8.5% in July, but warmer than expected at 8.0%. Core inflation was well above the 5.9% annualized pace in July. Rob Dent, senior economist at Nomura US, said the report showed surprisingly broad-based inflation, with prices of everything from auto parts to medical services rising. “We saw this tug-of-war between goods moderating and services staying strong. It’s not a tug of war. They both went up,” Dent said. “Right now, I think the Fed is looking at this with great concern. There is no good news in this report.” In the futures market, the anticipated terminal rate for the fed funds rose to 4.29% next April, down from 4% before the 8:30 p.m. CPI release. The terminal, or final rate, is the level at which the central bank is expected to stop raising interest rates. The fed funds rate range is currently 2.25% to 2.5%. “They can’t take 1 percentage point off the table,” said Diane Swonk, chief economist at KPMG. “They have to consider the 1%…. This is a Fed that is not feeling a bit comfortable now. It absolutely validated their harsh point…. They are justified in that approach because inflation is sluggish Inflation severe Looking at places.” Swonk pointed to a jump in shelter costs of 0.7 percent, or 6.3%, over the past year, the biggest increase this year, and a rebounding trend. “Eggs are up about 40% from a year ago. The continuation of food inflation is still there. You’re hitting shelter and medical costs,” she said. Medical services grew 0.8% from July. “There was a big jump in dental costs, but also in hospitals. Those are the things we were waiting for, those shoes would fall off,” she said. Swank is expecting a three-quarter hike on Sept. 21, and said the Fed will also consider an August retail sales report due this Thursday. She noted that the Fed wants to tighten policy as quickly and as possible. She expects the fed funds rate to rise to 4% by the end of the year. The Fed has recently intensified its flamboyant rhetoric, discouraging investors from expecting it to cut rates any time soon. The futures market was pricing in a rate cut for the second half of 2023. “I think it’s a game-changer, honestly. For next week, I don’t think it’s a clear-cut sign. I’m still leaning toward 75 as Jefferies chief economist Anita Markowska said, Inflation expectations have barely rolled over.” The prospects for them to slow down in November and December look very slim right now. And I think there’s a good chance they may have to continue this momentum in November and maybe slow down to 50 by December. This would already bring us to 4.50%. Terminal rates.” Markowska said that some of the rising prices are directly driven by higher labor costs, such as shelter and medical services. The fact that it was so widespread was worrying, she said. Prices that were expected to fall, They went up instead.” You’d think we’d see more price weakness. Retailers are raising prices. Not because they have to, but because they can. Demand is still strong,” she said. “Furniture prices are up 1.1%. It was the biggest since March.” He added that it would be difficult for policymakers to justify the pause at this time. “Inflation seems to be driven by more demand,” Markowska said.