Last Updated on September 7, 2026 by Deon
Federal Reserve Focus Turns to Inflation
The Federal Reserve’s next policy decision will depend heavily on US inflation data with markets closely watching the August Consumer Price Index report.
TD Securities economists Oscar Munoz and Eli Nir expect the August CPI figures to be soft enough for the Federal Reserve to keep interest rates at its September meeting. They also expect the data to point toward contained underlying inflation.
The outlook comes after recent US employment data showed signs of stabilization allowing policymakers to put emphasis on the inflation side of their dual mandate.
August CPI Could Keep Fed on Hold
According to TD Securities the August CPI report is expected to be moderate enough to support a pause in September.
The firms economists believe the CPI-to-PCE inflation translation will also remain relatively contained. Their forecast points to core PCE inflation of around 0.18% month over month while the market-based measure could be even softer at 0.13%.
Such readings would give cautious Federal Open Market Committee members room to support keeping rates unchanged.
Wallers View Remains Important
Federal Reserve Governor Christopher Waller has indicated a preference to keep interest rates on hold long as incoming inflation data allows.
This makes the August CPI report particularly important. If inflation remains under control policymakers may have immediate reason to adjust rates.
However a strong inflation reading could quickly change the outlook. A hotter CPI report could increase expectations for a rate hike. Put pressure on financial markets.
Inflation May Stay Elevated
While the immediate outlook points toward a Fed pause TD Securities expects inflation to remain relatively high for the rest of the year.
At the time the US labor market has stabilized. This combination could allow the Federal Reserve to focus heavily on its inflation mandate rather than responding to rapidly deteriorating employment conditions.
The result is a balanced policy environment but one where upside inflation surprises remain a major risk.
Rate Hike Risk Has Not Disappeared
Although TD Securities expects the Federal Reserve to remain on hold over its forecast horizon the economists believe that if policymakers do make a move this year a rate hike would be more likely than a rate cut.
This is a distinction for currency and bond markets.A hotter-than-expected inflation report could strengthen the US Dollar as traders increase expectations for monetary policy. US Treasury yields could also move higher. Conversely, softer inflation could reinforce expectations that the Federal Reserve can remain patient.
Impact on the US Dollar
The US Dollar is likely to remain highly sensitive to changes in Federal Reserve expectations.
A strong CPI reading could support the greenback by increasing the likelihood of interest rates. This could weigh on currency pairs such as EUR/USD and GBP/USD.
A softer CPI figure could have the effect potentially pushing Treasury yields lower and reducing demand for the Dollar.
For traders the relationship between inflation, bond yields and Federal Reserve expectations will therefore be crucial.
Gold and Other Markets May Also React
US inflation data could also create volatility in precious metals. If inflation comes in hotter than expected higher yields and stronger rate-hike expectations could pressure gold and silver. If inflation is softer falling yields could provide support for -yielding assets.
Equity markets could also respond to changes in interest-rate expectations, particularly if investors begin pricing a restrictive Federal Reserve policy.
Federal Reserve Outlook
The current outlook favors a Federal Reserve pause if inflation data remains subdued.
However policymakers are unlikely to ignore a renewed acceleration in prices. A stronger CPI report could reopen the debate about another rate increase, with the labor market showing signs of stabilization.
For now markets appear to be waiting for confirmation from the inflation data before making a move in either direction.
