9/12/25: Fed Rate Cut Likely as Inflation Cools

This week’s inflation data reaffirmed the likelihood of a Fed easing at their upcoming meeting on September 17. The Producer Price Index (PPI) declined -0.1% month over month in August following the previous month’s 0.7% jump. This was the first decline in PPI in four months as machinery and vehicle wholesale margins fell by -3.9%, reversing the July increase for that segment. The widely followed headline Consumer Price Index (CPI) print for August came in slightly hotter than expected, rising 0.4% month over month and 2.9% over the prior year. Core CPI, which excludes the volatile food and energy components, increased 0.3% in the month and 3.1% year over year, solidly in line with expectations. Some notable contributions to the gains came from shelter, motor vehicles and repairs, hotels, airfares and food (especially coffee and beef) prices. The Fed and market participants will continue to monitor inflation data in the coming months to assess the impact of tariffs on prices and the health of the consumer.

The University of Michigan Sentiment Index came in at 55.4 for September versus consensus expectations calling for 58.2. The decline reflected concerns surrounding the outlook for business conditions, the labor market and the cost of living. One year inflation expectations remained at 4.8%, while the five-to-ten-year outlook rose to 3.9% from 3.5% in the previous survey.

Mortgage applications surged 9.2% in the week ended September 5 as recent employment reports indicating weakness in the labor market drove interest rates lower. The 30-year mortgage rate dipped to 6.35% as of 9/11/25, according to Freddie Mac. The yield curve flattened this week with the 2-year US Treasury currently trading higher at 3.56%, the 5-year trading at 3.63% and the 10-year edging lower to 4.06%. The market is anticipating the Federal Reserve will cut interest rates by 0.25% at their meeting on Wednesday, with nearly 3 quarter point rate cuts now priced in for 2025.

Next week:  Empire Manufacturing, Retail Sales, Import Price Index, Export Price Index, Industrial Production, Housing Starts, FOMC Meeting, Leading Economic Indicators (LEI), Treasury International Capital (TIC) Flows.

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