Core Data at a Glance

  • Data released by the U.S. Bureau of Labor Statistics on Thursday showed that inflation accelerated to its fastest pace this year in August, while the job market showed signs of cooling, which makes the Federal Reserve lean toward cutting interest rates to stimulate the economy at its policy meeting next week, but policy risks are rising accordingly.
  • The Consumer Price Index (CPI) rose 0.4% month-over-month in August and 2.9% year-over-year, compared with a 0.2% monthly increase in July. Excluding volatile food and energy prices, core CPI rose 3.1% year-over-year. During the same period, initial jobless claims last week were 263,000, the highest level since October 2021.
  • "We still don't believe the economy needs the Fed to provide stimulus at the end of its two-day meeting on September 17," Ed Yardeni, president of Yardeni Research, said in a report on Thursday. He noted that the economy is still growing, inflation is above the Fed's 2% target, and the unemployment rate is relatively low.

In-Depth Analysis

CPI data show that U.S. tariffs at their highest levels since the 1930s are accelerating price increases across the broader economy.

In August, prices for new cars rose 0.3% month-over-month, used cars and trucks rose 1%, and clothing and audio-video products each rose 0.5%, highlighting the inflationary pressure from import tariffs.

In addition, prices for sensitive goods and services that consumers encounter daily also rose. Housing costs rose 0.4% month-over-month in August, food prices rose 0.5%, and gasoline prices rose 1.9%. The Bureau of Labor Statistics said the rise in housing costs was the largest contributor to the monthly increase in overall CPI.

"Tariffs are indeed raising prices on imported goods and some services that rely on supply chains, which will put pressure on the economy," said Dana Peterson, chief economist at The Conference Board, on Wednesday. "Consumers will reduce spending, which will make businesses reluctant to invest too much—and they may even start laying off workers—that's where the economic weakness lies," she added during a webcast.

Despite inflation remaining above the 2% target, Federal Reserve Chair Jerome Powell and other policymakers have expressed concerns in recent weeks about the cooling labor market. Their public comments have focused more on the congressional mandate for maximum employment, reinforcing market expectations for policy easing at next week's meeting.

Some economists argue that policymakers' immediate priority should be employment, rather than price stability—the other half of the Fed's dual mandate.

"The U.S. CPI data came in line with market consensus expectations, and the main market mover this morning was the jobless claims figure, which far exceeded expectations," Mohamed El-Erian, chief economic adviser at Allianz, said in a post on X. "The overall signal from this week's data is clear and is something I've been emphasizing for some time, and now more people are echoing it. Inflation may still be above the Fed's target, but the bigger risk to the economy lies in the speed and severity of labor market weakness," he added.

Labor Department data show that the four-week moving average of initial jobless claims rose to 240,500 last week, the highest level since June.

The data release follows a preliminary report from the Bureau of Labor Statistics on Tuesday showing that employment growth for the 12 months through March could be revised down sharply by 911,000, or 0.6%, a record revision.

Additionally, the Labor Department said last Friday that overall hiring activity declined in August and the unemployment rate rose to 4.3%. Nonfarm payrolls increased by only 22,000 that month, far below expectations, while revised data showed June job losses of 13,000, the first decline since December 2020.

Peterson noted that Powell said in a speech late last month that he was "very concerned about the rising downside risks to the maximum employment mandate." She said: "Yes, these risks are intensifying, and if they want to become proactive again, they need to act now to cushion the economy."