US retail inflation worsens to 7-month high as expected, supports Fed rate cut hopes

Consumer inflation was recorded at a seven-month high of 2.9 per cent in the world's largest economy last month, official data showed on Thursday. In July, the reading had stood at 2.7 per cent. However, the latest reading was in line with broad market expectations and unlikely to deter the Fed from a widely expected cut in benchmark interest rates this month. Weakness in the American jobs market has rekindled hopes for a Fed rate cut this month, amid growing concerns the Trump 2.0 administration's tariff policy will hurt the US and other major economies. 

Annual core inflation in the world's largest economy also met the mark in terms of analyst estimates, at 3.1 per cent in August, the data showed. 

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US inflation data, weakness in US jobs market & rate cut hopes 

Separate data last week showed joblessness hit a nearly four-year high of 4.3 per cent in the economy in August, supporting bets for a prompt rate cut at the next FOMC review, according to foreign media. 

The US central bank is widely expected to deliver a 25-basis-point reduction in the key lending rate when its rate-deciding panel meets next week.

The Federal Open Market Committee (FOMC) is scheduled to meet on September 16 and 17. The outcome of that meeting will be announced on the afternoon of September 17 local time (around 11:30 pm India time)

Analysts also anticipate more policy easing later this year if the current inflation and employment conditions persist. 

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What economists say about latest US inflation data

The US' August CPI reading, largely as expected, removes a key risk for the markets ahead of the FOMC's meeting next week, according to Emkay Global Financial Services. 

"While this print shows that inflation is unlikely to get better soon, the sharp weakening in labour market dynamics means that a 25-basis point cut next week is now certain, with the market now pricing 3 cuts in total in 2025," said Madhavi Arora, Chief Economist at Emkay Global. 

The markets are now pricing in nearly three Fed rate cuts, amounting to 75 basis points, in 2025, she said. 

"The probability of a cut in September has remained at 91 per cent... The Fed is now almost certain to turn towards the employment side of its dual mandate and restart its easing cycle next week," added the economist.