Fed Rate Hike Still Widely Expected in September Despite a Mixed U.S. CPI Report – Currency Thoughts
Fed Rate Hike Still Widely Expected in September Despite a Mixed U.S. CPI Report
August 12, 2025
While overall U.S. CPI inflation of 2.7% last month was a tick under expectations, core inflation excluding food and energy rose 0.2 percentage points to 3.1%, crossing above the 3.0% threshold for the first time in five months. A tariff-led boost to goods prices was not discernible, but a 0.4% monthly advance in non-energy service costs was the most six months.
Juxtaposed against weaker labor market indicators, today’s CPI data did not shake overwhelming market expectations that the FOMC will cut its federal funds target in September for the first time since last December. President Trump has again ramped up pressure on “too late” Powell, threatening him with a lawsuit on a different matter.
Rate cut expectations have favored stocks but are weighing on the dollar. The greenback fell so far this Tuesday by 0.4% against the euro, Swiss franc, peso and sterling. In the first hour and half of U.S. stock market trading, the DOW and Russell 200o had climbed over 1.0%. The Nasdaq and SPX gains were not as steep. In other stock markets around the world, share prices in Japan (+2.2%) got a big boost from signs of U.S. tariff relief. Stock markets rose 2.4% in Indonesia, 0.5% in China and 0.3%, and 0.4% in Australia where the central bank’s official cash rate as expected was cut, but there were declines of 1.2% in New Zealand, 0.5% in South Korea and India, and 0.3% in Singapore. Germany’s DAX is also in the red in reaction to an unexpected setback in the ZEW index of investor sentiment there. The Paris CAC and Italian MIB show gains.
Oil and gold prices are down a bit, while Bitcoin has risen slight.
The Reserve Bank of Australia’s interest rate cut, like those February and May, amounted to a quarter percentage point (25 basis points). At 3.60%, the new OCR level of 3.60% is its lowest since the start of May 2023. Also as before, the rate change was synchronized with a scheduled quarterly Monetary Policy Report, which reduced projected 2025 GDP growth by almost a half percentage point to 1.7%. “Trade policy developments are still expected to have an adverse effect on global economic activity, and there remains a risk that households and firms delay expenditure pending still greater clarity on the outlook.” Core inflation is back within the target band.
According to the German ZEW Institute’s monthly gauge of investor sentiment, which had been improving sharply, confidence unexpected weakened over the past month to a 3-month low, and perceptions of current circumstances also took a hit as terms of the U.S.-EU trade deal were learned and in response to recent news that German GDP had slightly contracted in the second quarter. Separately, the ZEW measures of future and current conditions in the euro area economy retreated too to 3- and 2-month lows. Deeper disinflation is expected, however.
British monthly labor statistics were also reported today. The jobless rate’s 3-month average remained near a 4-year high of 4.7%, but jobless claims fell for the fourth time in five months. Average weekly earnings on-year growth slowed to a 9-month low of 4.6% in April-June. A separate release from the U.K. of same store sales, up 2.7% on-year in July, was between the prior two months’ readings.
South Africa continues to have one of the world’s highest unemployment rates, which rose last quarter to a 1-year high of 33.2%.
U.S. small business sentiment improved to a 5-month high in July.
Ireland’s construction purchasing managers index sank to a 19-month low in July of 47.1.
Germany’s current account surplus of EUR 119.4 billion in the first half of 2025 was 17.25% smaller than a year earlier.
The tariff-war truce between the United States and China was extended by another 90 days in a move that had been widely anticipated.
Consumer price inflation in India eased more sharply than forecast in July to a 97-month low of 1.55%.
Brazilian CPI inflation last month of 5.23% was its lowest since February.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British labor statistics, Euroland and German ZEW expectations index, Reserve Bank of Australia, U.S. consumer price inflation
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