span>span>Thursday 11th Sept 2025/span>span> - 15:05 (BST)/span>/span>
US consumer prices edged higher in August, underscoring the challenge facing the Federal Reserve as it weighs whether to cut interest rates at its meeting next week. Headline inflation rose 2.9% year on year (the fastest pace since January) while core inflation, which strips out volatile energy and food components, held steady at 3.1%.
The modest rise in prices comes as investors remain convinced the Fed will move ahead with a quarter-point cut, lowering the federal funds rate from its current 4.25–5.5% range. Markets are betting that concerns over a weakening labour market will outweigh inflationary risks, despite political pressure from President Donald Trump.
Employment figures have been at the centre of that debate, with downward revisions earlier this summer erasing 258,000 jobs between May and June. Last week the Bureau of Labor Statistics reported June’s figures had slipped into negative territory for the first time since late 2020, while unemployment reached its highest level in three years.
For the Fed, the policy calculus is complicated: it must balance fragile labour market gains against its campaign to return inflation to a 2% target. With tariffs continuing to filter through supply chains, inflation is unlikely to retreat quickly and raises the risk that premature easing could undermine credibility.
The Fed’s decision will also have important repercussions on global demand for USD. A rate cut would narrow yield differentials with other major currencies, potentially tempering investor appetite for dollar-denominated assets. Conversely, safe-haven flows may still support the greenback if US growth fears intensify.
