ISTANBUL/WASHINGTON/NEW YORK
While the latest data released in the US points to an acceleration in consumer price increases and further weakening in the labor market, the Federal Reserve is widely expected to make its first interest rate cut of the year next week.
Following last week's employment data, this week's inflation figures were closely watched for insights into the future of monetary policy.
According to the data, the number of open jobs in the US (JOLTS) fell to 7.18 million in July, the lowest level since September 2024 and below expectations.
Private sector employment in the country also increased by 54,000 jobs in August, below market expectations.
Non-farm employment in the US increased by 22,000 jobs in August, falling short of expectations. The unemployment rate, which rose from 4.2% to 4.3%, also reached its highest level since October 2021.
The number of people filing for unemployment benefits for the first time in the country also rose by 27,000 to 263,000 in the week ending Sept. 6, reaching its highest level since October 2021.
Meanwhile, this week, the Bureau of Labor Statistics revised its employment statistics, finding that 911,000 fewer nonfarm jobs were created in the 12-month period ending in March 2025 than initially reported.
On the inflation front, the US Producer Price Index (PPI) fell by 0.1% in August, marking the first monthly decline since April. The PPI rose 2.6% year-on-year, falling short of expectations.
The Consumer Price Index (CPI) rose 0.4% month-on-month in August, exceeding expectations, and rose 2.9% year-on-year, in line with expectations.
Annual inflation reached its highest level since January during this period.
While producer inflation slowed on an annual basis, the acceleration in consumer inflation drew attention.
- Trump continues to call for interest rate cuts
Speaking after the release of the PPI data, US President Donald Trump said there was no inflation and alluded to Fed Chairman Jerome Powell on his Truth Social platform: "Just out: No Inflation!!! 'Too Late' must lower the RATE, BIG, right now."
International Monetary Fund (IMF) spokesperson Julie Kozack also stated at a press conference Thursday that given the downside risks to employment, there is room for the Fed to start lowering its policy rate.
Trump, who has advocated for interest rate cuts since taking office in order to boost the country's economy and reduce the interest costs of the national debt, has repeatedly called on the Fed to cut rates.
Despite months of criticism from Trump, who argued that interest rates were not falling fast enough, the Fed and Chairman Powell maintained their cautious policy stance, pointing to upside risks to inflation.
The Fed, which last cut rates in December last year, has not changed its policy interest rate at any of its five meetings this year.
Despite data at the beginning of the summer pointing to a decline in inflationary pressures, the Fed, wanting to see how tariffs would affect price increases throughout the summer, continued to keep its policy rate steady in the 4.25%-4.50% range.
- Fed in a difficult situation
Ryan Sweet, chief economist at Oxford Economics, told Anadolu that the Fed is “in a difficult situation” because Thursday's data showed progress in the wrong direction on inflation and maximum employment targets.
Sweet said that overall, the central bank's risk management approach made him feel comfortable with the decision to push back the next rate cut expectation from December to September.
He pointed out that headline inflation rose slightly more than expected but noted significant increases in “volatile components” such as airline tickets.
Sweet said the increase in core goods prices was accelerating, which could be due to tariffs being passed on to consumers to a greater extent.
He also noted that the increase in core service prices was largely in line with expectations, adding that this was sensitive to the state of the labor market.
"Inflation is on the Fed’s radar, but a consensus is forming within the central bank that tariffs will cause a one-time price level increase even if it’s spread out several months because of the lag effects between changes in the effective tariff rate and consumer prices,” he said.
"Anchored market-based inflation expectations will allow the Fed to cut in September, but the data this morning doesn’t tip the odds in favor of 50bps."
"Inflation is only a piece of the puzzle to gauge the path forward for the Fed," Sweet said, adding that Thursday's jobless claims rose much more than expected, but the data also included the Labor Day holiday.
Sweet noted that initial claims are notoriously volatile and odds are that the Fed won’t overreact to a single report.
- 2 rate cuts for this year
Steven Kamin, a senior fellow at the American Enterprise Institute (AEI), also said that CPI increases were expected but confirmed that Trump's tariffs were pushing inflation higher.
Pointing out that both headline and core CPI rose in August, Kamin emphasized that if this continues, it "would far outstrip the Fed's 2% target."
"As a result of today's CPI data, I am calling for only two Fed funds rate cuts this year --one next week, one in December -- as opposed to the three cuts I had penciled in earlier,” he said.
“Today's surge in jobless claims might imply three cuts, but there have been similar surges earlier in the last few years that did not last, so I'm discounting that," he added.
- Increasing jobless claims to reaffirm expectations for rate cut
Padhraic Garvey, regional head of research, Americas, at ING, said headline and core inflation in August were above the monthly rate of 0.17% needed to bring annual inflation down to the Fed's 2% target and that tariffs could keep it above that in the coming months.
"We continue to argue that this is a one-off step change in prices rather than something that will lead to more permanent inflation," Garvey said, adding that energy costs, slowing rent increases and a weakening labor market will contribute to more moderate inflation through 2026.
Garvey said that core goods subject to tariffs account for only 19% of the inflation basket, while services, which carry more weight, are not subject to tariffs, and wages are the main driver of inflation in this area.
Although the inflation data came in slightly above expectations, Garvey pointed out that jobless claims had risen to their highest level since October 2021.
“On the face of it, this hints at a pick-up in the pace of layoffs in an environment of already weak hiring and will re-affirm expectations of a 25-basis-point Fed rate cut next week,” he said.
