Latest inflation data doesn't mean much for the Fed — what actually matters

Economic Outlook - Consumer prices rose in line with expectations in August, indicating no significant surprises for the Federal Reserve [1][2] - The Federal Reserve is likely to cut rates by 25 basis points next week, with a 50 basis point cut being off the table [2][3] - There are tariff effects present in the consumer basket, but they are not substantial enough to alter the Fed's plans [3][5] Labor Market Analysis - Initial jobless claims have increased, and continuing claims are trending higher, indicating a weakening labor market [9][10] - The duration of unemployment is at its highest in four to five years, suggesting challenges in job recovery [10] - Revisions to last year's job growth data indicate that the labor market was not as strong as previously thought [12][13] Inflation and Consumer Impact - Inflation is expected to worsen before improving, with businesses struggling to pass on cost increases to consumers [6][7] - Lower-end consumers are particularly unable to absorb price increases, leading businesses to explore cost-cutting measures [7][8] - Profit margins are likely to come under pressure, which could lead to lower market multiples and affect investor returns [22][24] Market Sentiment - The current economic data suggests a potential for slower growth rather than a hard landing [20] - Market valuations may be high relative to fundamentals, indicating that expectations for rapid growth may not be sustainable [21][22] - There is concern that a weakening jobs market combined with compressing profit margins could negatively impact the stock market [22][24]