US inflation rose in August, driven by companies passing on the cost of tariffs to consumers. The consumer price index (CPI) increased 2.9% over the past year, the highest rate since January. Core CPI, which excludes food and energy, held steady at 3.1%.
Despite the increase, investors remain optimistic that the Federal Reserve will cut interest rates when it meets next week. Markets are expecting a quarter-point reduction from the current range of 4.25% to 5.5%. Wall Street rallied after wholesale price data showed a slowdown in August, raising hopes that inflation is rising at a more manageable pace.
Fed Chair Jerome Powell recently indicated that changing economic conditions could warrant a policy shift. While tariffs have pushed up prices, Powell highlighted that the weakening job market is now a bigger concern, warning of the risks of higher layoffs and rising unemployment.
Labor market data has shown troubling signs, with job growth revisions revealing losses in recent months. The unemployment rate rose to 4.3%, the highest since 2021. The Fed will announce its rate decision on September 17.
