9/15/25 REcap: Tariff inflation is still a risk; Fed is ready to cut

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Inflation Surprises on Both Ends

PPI - A Shocking Decline

Wholesale inflation actually cooled in August, with the Producer Price Index slipping 0.1% month over month. That’s unusual given months of tariff pressure working its way through supply chains. Many wholesalers and manufacturers are still trying to absorb higher import costs rather than passing them on. But history says that can’t last forever. Companies will either raise prices to preserve margins or cut production if they can’t. For homebuyers, the PPI is a leading signal: if it keeps trending lower, consumer prices may ease later. But if it bounces higher, it means more inflation pain is still coming down the pipe.

CPI - A Shocking Increase

While wholesale prices dipped, consumer prices went the other way as tariffs start to hit consumers' wallets. CPI rose 0.4% in August, double July’s 0.2% gain, bringing the annualized pace to 2.9%. Shelter, services, and household goods are doing the heavy lifting. Tariffs are now clearly making their way into consumer budgets—furniture, appliances, and electronics have all risen sharply since February’s new duties. Goldman Sachs projects consumers will bear about 2/3 of the tariff burden by year‑end, which is exactly what we’re starting to see. For everyday households, that translates into higher monthly costs on essentials, squeezing affordability just as mortgage rates have become more favorable.

Taken together, the PPI and CPI reports tell the story the Fed is most worried about: tariff‑driven price pressures remain a risk, but they aren’t the reason Powell is cutting now. The cut is almost entirely about deteriorating labor data. That’s why a modest 25bp trim is likely—just enough to ease conditions without fueling more inflation—but don’t expect a flood of aggressive cuts until the jobs picture worsens further.

Jobless Claims: The Labor Market Weakens Further

The labor market data continues to deteriorate. Jobless claims spiked to 263,000 last week, the highest in nearly four years. That follows a sweeping revision that showed nearly a million fewer people working between April 2024 and March 2025 than previously reported. Employers aren’t collapsing, but the slowdown is undeniable—layoffs are spreading, hiring freezes are common, and wage growth has lost steam.

For households, the pressure is showing up in debt. Credit card balances jumped by $10.5 billion in July alone, the fastest pace in three months. Rising unemployment combined with rising consumer prices is a toxic mix—families are leaning more heavily on plastic to cover day‑to‑day expenses. And with borrowing costs still elevated, carrying balances is more expensive than ever.

The Fed Cut on Wednesday: 25bp or 50bp?

Today, futures markets are assigning just a 5.6% chance of a 50bp cut—so almost everyone expects Powell to play it safe with a quarter‑point. But Trump is applying maximum pressure, openly telling reporters he expects a “big cut” and reminding Powell that his chairmanship ends in 2026. The political theater is as loud as the market noise.

Most strategists agree the Fed will go with 25bp this week, then reassess. But here’s the catch: if Powell surprises with 50bp, markets could react in unexpected ways. My eyes will be clued to the TV on Wednesday at 2:30PM ET to hear Powell speak and I'll let you know if anything unexpected could derail the recent drop in rates we've been enjoying.