US inflation picked up pace in August, underscoring the complex backdrop facing the Federal Reserve as it prepares for its policy meeting next week. Both headline and core inflation readings came in firm, keeping markets convinced that
Data from the Bureau of Labor Statistics showed the consumer price index (CPI) rose 0.4% from July, the largest monthly gain since the start of the year, and higher than the expected 0.3%. On an annual basis, headline inflation stood at 2.9%, slightly above forecast of 2.8%.
The core CPI, which strips out volatile food and energy components, rose 0.3% month-on-month, matching July’s pace. Year-on-year, it increased by 3.1%, in line with expectations. Fed officials consider core to be a
The uptick in inflation comes alongside signs of cooling in the labour market. Weekly jobless claims rose sharply to 263,000, well above estimates of 235,000, suggesting some softening in employment conditions. The combination of firmer inflation and weaker jobs data presents the Fed with a delicate balancing act as it considers its next move.
Economists say part of the price pressure stems from the gradual pass-through of tariffs.
According to a Reuters report, Stephen Stanley, Chief Economist at Santander US Capital Markets, said: “The evidence is overwhelming that more tariff-related inflation is coming, though it may still be several months before it passes through fully.”
Also Read: US Stock futures pare gains after CPI, jobless data
The Fed, which targets 2% inflation as measured by the Personal Consumption Expenditures (PCE) index, has already signalled it is prepared to act. Markets have fully priced in a quarter percentage point
According to a CNBC International report, market pricing indicates a 100% certainty that the Fed will lower its benchmark interest rate, currently targeted between 4.25-4.5%.
However, there has been a slight implied chance that the Fed might choose to deviate from its usual quarter percentage point move and cut by half a point considering weakness in the labour market this year, besides subdued inflation readings.
The meeting will also release the updated 'dot plot’ of economic projections, which is expected to shed light on how many more cuts policymakers anticipate this year and beyond.
Despite the stronger CPI print, US stock futures edged higher on Thursday (September 11), as investors viewed the data as keeping the Fed firmly on its easing path.
With headline inflation still above the Fed’s target and signs of slower job growth emerging, all eyes are now on Chair Jerome Powell to see how the central bank charts its
