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Contents 02 US: We Disagree, But the Fed Is Poised to Hike Having talked the hawkish talk, the FOMC is now poised to walk the walk and deliver a hike at the September meeting.

03 Eurozone: “No-brainer” Hike Implies More to Come The ECB raised its policy rates for the second time since the start of the Iran war. New forecasts and hawkish tone imply another hike is likely.

04 UK: Strong Headline, Weak Outlook Headline GDP strength masks weaker underlying growth. July’s narrow rebound, softer household demand and rising borrowing costs are key risks.

07 Japan: How Hawkish? The BoJ can take confidence in a strong economy and deliver a hawkish hike next week. The question is, how hawkish?

Spotlight on Next Week The Fed is poised to hike. BoJ to hike with hawkish guidance.

Contact Simona Mocuta Amy Le Chief Economist Macro-Investment Strategist

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Weekly Highlights Higher oil prices and hot US inflation point to a September Fed hike.

US: Headline CPI US: Core CPI Inflation EZ: ECB Deposit Inflation (Aug, y/y) (Aug, y/y) Facility Rate

3.4% 2.4% 2.50% As expected. Not good enough. Anticipated hike.

UK: GDP (July, m/m) UK: Industrial UK: Manufacturing Production (Jul, m/m) Production (July, m/m)

0.4% 0.2% 0.9% But weak underlying drivers Above expectations. Above expectations.

JP: CGPI (Aug, m/m) JP: GDP (Q2, q/q) AU: NAB Business Conditions (Aug)

-0.2% 0.4% -1 Peak goods PPI? Slightly below expectations. Lowest since 2013.

US: Walking the Walk Any other month, we would have described the latest US inflation data as “good enough”. But not this month. Fed Chair Warsh had drastically lowered the bar for Fed hikes with his Jackson Hole speech, and FOMC commentary since then had placed disproportionate weight on the August inflation data, such that the smallest upside surprise would cement hike bets. And so it was...

Overall consumer prices rose 0.4% m/m in August, as expected, but core prices increased a larger than expected 0.3% m/m. So, even though the core inflation rate of 2.4% y/y was the lowest since March 2021, it seems almost guaranteed that the Fed will hike rates on September 16th. We find this ironic in a sense, because the CPI components that would normally worry us more as signaling sustained price pressures ahead were actually pretty reassuring. Most importantly, shelter inflation still points in the right direction, with Owner Equivalent Rent (OER) inflation matching the lowest reading post-Covid reading at 3.1% y/y. Core goods inflation sits at 0.7% y/y, down about 80 basis points since a year ago, validating our long- held assertion that tariffs would have only a modest impact on goods inflation. Similarly, we anticipate that, aside from specific categories such as airfares, there would be very modest pass-through of higher energy prices into the broader goods/services inflation. Even in airfares, we believe much of the pass-through has already occurred and further price increases will hit against a more price-conscious consumer.

Information Classification: General