Group 1 - The U.S. government shutdown has created a significant "black hole" in the economy, leading to a backlog of critical economic reports that will soon be released [2] - The September employment report is expected to be released soon, with estimates suggesting it could be available as early as this week or early next week [2] - The shutdown has severely impacted the release of key inflation reports for October, including the Consumer Price Index (CPI), Producer Price Index (PPI), and Personal Consumption Expenditures (PCE) index, which may not be published at all [4] Group 2 - The delay in the September employment report and the potential absence of the October inflation reports will hinder the Federal Reserve's decision-making regarding interest rate cuts in their upcoming meetings [4] - The October employment report is likely to be delayed significantly, possibly until just before the Federal Reserve's next meeting on December 9-10, and may even be combined with the November report [4][6] - The forced leave of hundreds of thousands of federal employees could distort the data in the October report, making it less reliable [6]

Core Insights - The U.S. Personal Consumption Expenditures (PCE) price index rose by 0.3% month-on-month and 2.7% year-on-year in August, while the core PCE index increased by 0.2% month-on-month and 2.9% year-on-year, indicating stable inflation data [2] - Following the release of the PCE data, U.S. stock markets rebounded after three consecutive days of decline, with the Dow Jones up 0.65%, S&P 500 up 0.59%, and Nasdaq up 0.44% [2] - The consumer confidence index for September fell to 55.1, marking one of the lowest levels since 1952, reflecting growing pessimism among consumers regarding the economy [4] Economic Indicators - Initial jobless claims decreased by 14,000 to 218,000, the lowest since mid-July, which was significantly below market expectations [3] - The final GDP growth rate for Q2 was revised up to an annualized 3.8%, driven by unexpectedly strong consumer spending and a decline in imports [3] - Consumer spending, which accounts for over two-thirds of U.S. economic activity, grew by 0.6% month-on-month in August, surpassing expectations of 0.5% [5] Consumer Sentiment - A significant 44% of survey respondents reported that high prices are eroding their financial situation, the highest proportion in the past year [4] - The consumer sentiment index indicates that concerns over inflation and a weakening job market are prevalent among consumers [4] - High-income households are currently the main drivers of consumer spending, supported by a strong stock market and high housing prices [5] Market Outlook - There is a divergence in views within the Federal Reserve regarding the pace and extent of future interest rate cuts, with some officials advocating for caution while others call for more aggressive action [4] - The wealth effect from rising stock and housing prices is increasingly influencing consumer spending, posing risks if these asset prices decline [5]

Core Viewpoint - The unexpected decline in the Producer Price Index (PPI) in the U.S. for August marks the first drop since April, reinforcing the rationale for the Federal Reserve to consider interest rate cuts [2][5]. Group 1: PPI Data - The PPI decreased by 0.1% month-on-month in August, with July's data revised downwards. Year-on-year, the PPI increased by 2.6% [2]. - Excluding food and energy, the prices of goods rose by 0.3%, while service costs fell by 0.2%. The profit margins for wholesalers and retailers dropped by 1.7%, matching the largest decline since 2009 [6][7]. Group 2: Economic Implications - The decline in inflation expectations has led to an increase in U.S. stock index futures and bond prices, with market participants anticipating multiple interest rate cuts by the end of 2025 [6][8]. - The upcoming Consumer Price Index (CPI) data is expected to reveal how much of the tariffs have been passed on to American households, with analysts predicting a significant monthly increase in core indicators excluding food and energy [6]. Group 3: Federal Reserve Outlook - Federal Reserve officials are expected to lower interest rates in response to the rapid slowdown in the labor market, as indicated by recent employment data [6]. - The PPI report is closely monitored as some components are used to calculate the Fed's preferred inflation measure, the Personal Consumption Expenditures (PCE) price index [6].

Core Viewpoint - The unexpected decline in the Producer Price Index (PPI) in the U.S. strengthens the rationale for the Federal Reserve to consider interest rate cuts [3][12]. Group 1: PPI Data Analysis - The PPI fell by 0.1% month-over-month in August, marking the first decline since April, while year-over-year, it increased by 2.6% [3]. - Excluding food and energy, the prices of goods rose by 0.3%, while service costs decreased by 0.2% [8][10]. - The report indicates that despite higher costs from tariffs, companies refrained from significant price increases due to concerns about consumer behavior amid economic uncertainty [7]. Group 2: Market Reactions - Following the PPI data release, U.S. stock index futures and Treasury prices rose, reflecting market optimism regarding potential interest rate cuts [8][12]. - The decline in inflation expectations has led to a significant drop in two-year Treasury yields and a weakening of the dollar [12]. Group 3: Implications for Federal Reserve Policy - The extent to which companies pass on tariff burdens to consumers will be crucial in determining the direction of interest rates this year [9]. - Federal Reserve officials anticipate that import tariffs will elevate inflation through 2025, but the nature of this impact—whether temporary or persistent—remains undecided [9]. - The upcoming Consumer Price Index (CPI) data will provide insights into how much of the August tariffs have been transmitted to American households [9].

Core Viewpoint - The article discusses the recent rise in inflation pressures in the U.S. as of July, alongside a significant increase in consumer spending, indicating a complex economic landscape ahead of the Federal Reserve's September meeting [3]. Inflation Pressure - The Personal Consumption Expenditures (PCE) price index rose by 0.2% month-on-month in July, a slowdown of 0.1 percentage points from the previous month, with a year-on-year increase of 2.6%, remaining stable compared to June [4]. - The core PCE price index, excluding volatile food and energy prices, increased by 0.3% month-on-month, with a year-on-year growth accelerating to 2.9%, the highest level since February [4]. Consumer Spending - Consumer spending, which accounts for over two-thirds of economic activity, was revised up to 0.4% in June and accelerated to 0.5% in July, marking the highest growth since March [5]. - The increase in spending was largely driven by durable goods purchases, which rose by 0.8%, particularly in automobiles, household furniture, and sporting goods [5]. Labor Market and Employment - Despite a low unemployment rate supporting consumption and wage growth, employers are hesitant to increase headcount due to rising operational costs from tariffs [5]. - Average monthly job growth over the past three months was reported at 35,000, significantly lower than the 123,000 in the same period last year [5]. Policy Outlook - The July PCE data is one of three key reports ahead of the Federal Reserve's September meeting, alongside the August non-farm payroll report and the Consumer Price Index (CPI) [7]. - Many economists on Wall Street expect inflation to rise further due to increasing business costs and reduced inventory, with retailers and automakers warning that tariffs are raising their costs, which may be passed on to consumers [7]. Federal Reserve Consensus - There is a growing consensus within the Federal Reserve towards a potential rate cut in September, although significant divisions remain regarding inflation concerns and labor market weaknesses [8]. - The probability of a 25 basis point rate cut in September stands at 84%, consistent with the PCE data release [7]. Consumer Sentiment - The proportion of consumers finding it "hard to get a job" rose to the highest level in four and a half years as of August, indicating growing concerns about the labor market [9]. - Despite concerns about inflation spiraling, the current data suggests a potential for a rate cut in September, although uncertainties remain due to strong consumer and core inflation rates exceeding the Federal Reserve's target [9].

Core Inflation Pressure Escalates - The U.S. Personal Consumption Expenditures (PCE) data has shown a rebound since April after hitting a low in March, indicating that tariffs from the Trump administration are slowly pushing up goods prices and driving inflation rates [3] - The overall PCE price index is expected to rise by 0.3% month-on-month and 2.6% year-on-year in July, maintaining the same growth rate as June [3] - The core PCE price index, excluding volatile food and energy prices, may see a year-on-year increase of 0.1 percentage points to 2.9%, marking the highest level since February of this year, which is particularly significant as it is closely monitored by the Federal Reserve [3] Impact of Tariffs on Specific Industries - The furniture industry is projected to face a 4.2% year-on-year increase in prices due to tariffs and supply chain bottlenecks, with companies like Ashley Furniture and Ethan Allen passing costs onto consumers [4] - The manufacturing sector is expanding at the fastest pace in over three years, contributing to ongoing inflationary pressures, with sales price indices reaching a three-year high [4] - Wells Fargo reports that price pressures related to tariffs are expanding from goods to services, predicting that the core PCE will peak slightly above 3% by the end of the year [4] Cost Burden Distribution - As of June, U.S. businesses bore 64% of the costs from tariffs, while consumers took on 22%, and foreign exporters absorbed 14%. However, by October, it is expected that consumers will bear two-thirds of the cost increases, with foreign companies and U.S. businesses taking on 25% and 8%, respectively [5] Policy Outlook - At the Jackson Hole global central bank conference, Federal Reserve Chairman Jerome Powell indicated a potential for rate cuts in September, citing upward inflation risks and downward employment risks [7] - Major banks, including Morgan Stanley and Société Générale, have adjusted their forecasts to anticipate rate cuts starting in September, with predictions of quarterly cuts continuing until the end of 2026 [7] - The probability of a rate cut in September is currently at 87%, with a 36% chance of a total reduction of 75 basis points this year [7] Political Influence on Monetary Policy - President Trump recently dismissed Federal Reserve Governor Cook, which is seen as an attempt to exert control over the Fed, potentially allowing Trump to influence key appointments within the Federal Reserve Board [8] - If successful, this could lead to a majority control over the board, impacting future monetary policy decisions and potentially easing the path for rate cuts [8]

Core Viewpoint - The article discusses the potential for the Federal Reserve to initiate a small interest rate cut in September, influenced by rising inflation data and pressure from the White House, despite the current economic indicators not supporting a large-scale reduction [1][4]. Economic Indicators - The latest Consumer Price Index (CPI) data shows a year-on-year increase of 2.7% in July, with the core CPI rising by 3.1%, indicating that inflation remains above the Fed's target of 2% [1]. - The Personal Consumption Expenditures (PCE) price index, which the Fed closely monitors, recorded a June value of 2.6%, up from 2.4% in May and 2.2% in April, justifying the Fed's decision to maintain interest rates [2]. Employment Metrics - The unemployment rate in July was reported at 4.2%, unchanged for three consecutive months, and significantly lower than the peak of 14.8% in April 2020, suggesting a stable labor market [3]. Fiscal Concerns - The U.S. government is approaching a "technical default," with projections indicating that 30% of government revenue in fiscal year 2025 will be allocated to debt interest payments, exacerbating the fiscal deficit [4]. - The ongoing high-interest payments on national debt create a paradox with the Fed's high interest rates, leading to concerns about the sustainability of U.S. fiscal policy and potential market reactions [4]. Market Reactions - Since April, there has been a notable sell-off of ten-year U.S. Treasury bonds, reflecting growing market anxiety over the U.S. debt repayment crisis and the sustainability of government revenue [4].