Investor sentiment has remained upbeat throughout 2023. Financial markets have rebounded from their 2022 sell-off, with the S&P 500 gaining more than 15% and credit spreads tightening. The Fed's tightening cycle is nearing an end, and its impact has been limited thus far compared to prior tightening cycles.

In August, the Consumer Price Index (CPI) rose 0.6%, following a 0.2% rise in July (Figure 1 ). It was the biggest monthly increase in 14 months, with the recent surge in gasoline prices accounting for more than half of the rise. Excluding food and energy, the index rose 0.3%, compared to 0.2% in July.

Investors were surprised by the 0.1% month-over-month increase in the Consumer Price Index (CPI) for August. The report will likely push the Federal Reserve to persist with its aggressive campaign of interest rate increases.

COVID-19 case counts are the most important data point driving markets currently. Markets are concerned the highly transmissible delta variant will delay the economic recovery.

The Fed is holding interest rates near 0% and expects to keep rates there through 2023