US Inflation Up Ahead of Key Fed Rate Decision

The US Labor Department has released the latest consumer prices inflation figures for August, showing an increase of 0.2% to 2.9% pa.

This is the largest increase this year and comes just before the next interest rate decision by the Federal Reserve due on 17^th September (next Wednesday). 

Comment

The Fed committee has an interesting dilemma.

• Inflation is climbing, no doubt due to tariffs on imported goods.
• Unemployment is at 7.4 million, some 722,000 higher in a year.
• That said, the numbers of new claimants fell by 199,000 in August to 786,000 new claimants.

The US economy has slowed down and unemployment is higher but the numbers of new claimants (rather than long term claimants) is now falling, giving some room for a cut.  Given this, we do expect the Fed to cut rates by 0.25% next week to a range of 4.00% to 4.25% pa. 

The Bank of England’s base rate is currently 4.00% pa, so it is not a great leap for the Fed to do so.  The globe will no doubt welcome a US rate cut, so that its people buy more goods and services but a weaker $ will mean imports into the US will be more expensive, so it may backfire for those exporting to the USA.