U.S. Consumer Prices Rise 2.9% in August, Strengthening Fed Rate Cut Expectations
U.S. consumer price growth accelerated in August, though the increase came in line with forecasts, reinforcing market bets that the Federal Reserve will move ahead with interest rate cuts at next week’s policy meeting.
According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 2.9% in the 12 months through August, compared to 2.7% in July. The result matched economists’ expectations. On a monthly basis, inflation climbed 0.4%, faster than July’s 0.2% and slightly above the 0.3% consensus forecast.
Shelter costs, which also advanced 0.4%, were the largest contributor to the monthly gain. Excluding volatile categories such as food and energy, the core CPI grew 3.1% year-over-year and 0.3% month-over-month, mirroring July’s pace and meeting projections. Key drivers included higher airline fares, vehicle prices, and apparel costs, which were partially offset by declines in medical care and recreation expenses.
Elsewhere, weekly jobless claims increased to 263,000, above estimates of 235,000 and up from a revised 236,000 in the prior week. The combination of slowing labor market momentum and steady inflation has increased pressure on the Fed to act.
Kathy Jones, Chief Fixed Income Strategist at Charles Schwab, noted that the data “won’t deter the Fed from cutting rates,” but also pointed to the challenge of balancing the Fed’s dual mandate of maximum employment and price stability. Chair Jerome Powell has already signaled that policymakers are likely to focus more on labor market weakness over sticky inflation trends.
Markets are now pricing in a near-certain rate cut of at least 25 basis points at the September 16–17 meeting, with some speculation that the Fed could opt for a larger 50-point reduction. Lower borrowing costs may stimulate investment and hiring but also risk fueling further price increases.
At the same time, economists warn that rising U.S. import tariffs under President Donald Trump could push consumer prices higher, with retailers like Walmart and Target already reporting cost pressures being passed on to shoppers.
Analysts at Vital Knowledge added that while the CPI report wasn’t dramatically softer than expected, results that align with forecasts still provide additional support for a Fed rate cut in the current environment.
