Friday, September 12, 2025
At the risk of under-selling it, this has been an eventful week. With key inflation data milder than many had expected and jobless claims surging week over week, the U.S. economy looks primed for an interest rate cut at next week’s Federal Open Market Committee (FOMC) meeting next week.
Inflation on the retail side yesterday, via the Consumer Price Index (CPI) for August, saw only mild tariff pass-throughs to the consumer. Headline CPI came in at +0.4%, 10 basis points (bps) warmer than expected, but generally in-range of where we’ve been over the past three years. The Inflation Rate remains higher than the Fed would like at +2.9%, and consumers continue to feel the pinch of high retail prices, but we’ve not shot into another orbit.
Wholesale inflation, the Producer Price Index (PPI), actually fell to a negative -0.1% month over month on both headline and core. Tariffs don’t look to be affecting these numbers at all, and to the extent PPI figures anticipate future CPI, it would stand to reason next month’s CPI should come in relatively mild, as well.
In terms of jobs, a big jump in Initial Jobless Claims — much of which came from a one-off situation in Texas, which amounted to 15K claims all at once — pretty much sealed the deal for the Fed to cut rates at next week’s FOMC meeting. In fact, the current debate is not whether the Fed will cut, but whether it will be by a quarter point or a half point.
The Fed cutting rates seems, to some, to be a long time coming. But the Fed had been seeing an uncommonly stable labor market before this last downward revision (-911K jobs in a year) and were waiting for tariff numbers to show up. That the Fed is data dependent necessarily means a cut is ripe for the picking, even if doing so won’t bring an immediate remedy to a flagging labor market.
Thus, stock market indexes are at record highs (save the small-cap Russell 2000) as of yesterday’s close, and investors are currently on top of the world. (We’re booking profits off highs in the Dow and S&P 500 at this hour.) Rate cuts, should they come down low enough, will begin to unlock segments like the housing industry, which has been encumbered with heavy mortgage rates for years, and which begets economic activity across a spectrum of industries.
One Caveat to Next Week’s Rate Cut
Although we acknowledge the market’s good mood pivots on a pending interest rate cut next Wednesday — your guess as to whether it will be 25 or 50 bps — we do have one clear sightline once rates cool further over time: prices will not be going down. If we’ve remained closer to 3% to 2% on rates as high as they’ve been, we can expect they’ll be even less of a cap on prices going forward.
This is less than good news for consumers, especially those already beginning to curb spending — or, potentially worse: running up debt. If tariffs begin to take a bigger bite in our economy going forward, that will also push prices up, not down. And keep in mind: after the disastrous “Liberation Day” back in April forced the White House to pull back tariff rates, they’ve only been gradually introduced to the trade market since.
It would appear we’re still in the early innings of whatever economic reality ballgame we’re playing currently. And while there is plenty of excitement in the market — to say nothing of the corporate business-friendly Big Beautiful Bill, which will continue manifesting itself into the economy — there are also plenty of warning signs that prices may start getting too rich for many consumers’ blood.
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