Markets still fairly resilient to US inflation threat

While the US CPI data for August released today could have been worse, the combination of strong economic growth, above-target underlying inflation and the recent surge energy prices means that we now once again expect the FOMC to raise its policy rate next week and deliver a total of 75bp of hikes over the coming months. That said, since investors appear to have already largely acclimatised to the prospect of somewhat tighter US monetary policy, it would probably take a very hawkish message from Chair Warsh and the FOMC (or even more bad news out of the Middle East) to send Treasury yields much higher, give the dollar a major boost, or derail the equity market next week.