US inflation rose to 2.9% in August, highlighting the Federal Reserve’s challenge of tackling persistent price pressures while managing a slowing jobs market.
The latest consumer price index figures from the Bureau of Labor Statistics came in above July’s 2.7% reading and matched forecasts. Core inflation, which excludes food and energy, remained steady at 3.1%, suggesting that the impact of tariffs on underlying prices has been contained so far.
At the same time, signs of labour market weakness are becoming more pronounced. Initial jobless claims rose to 263,000 last week, the highest level since October 2021, while the US economy added only 22,000 jobs in August. In addition, the BLS revised down job growth estimates for the year to March 2025 by 911,000, pointing to a cooling trend that began in 2024.
The combination of stubborn inflation and weakening employment has strengthened expectations of a Federal Reserve rate cut next week. Market participants are betting on a quarter-point reduction, with a faster pace of cuts possible at upcoming meetings.
Treasury yields reflected this outlook: the two-year note, which is highly sensitive to Fed policy, briefly fell to 3.49% before stabilising at 3.53%.
Fed Chair Jay Powell has already hinted that rate cuts may be needed if job market softness continues. After reducing rates by one percentage point last year, the Fed has kept borrowing costs within a 4.25%–4.5% range as it assesses the inflationary effects of the US trade conflict.
The decision due next week will be closely watched as the central bank seeks to balance economic growth risks with the persistence of tariff-driven inflation.
Comments
Post a Comment