U.S. CPI Holds Near 3% Ahead of Fed Decision as Labor Market Shows Strain

The Consumer Price Index rose 2.9 percent in August from a year earlier, the last official inflation reading before the Federal Reserve meets on Sept. 17 to consider a key interest-rate decision. The monthly increase of 0.2 percent from July was in line with economists' expectations.

The report leaves the Fed facing a mixed picture: inflation remains above its 2 percent target, but signs of weakening in the labor market have increased interest-rate uncertainty. The S&P 500 rose in pre-market trading as markets continued to price in a likely rate cut at the upcoming Federal Open Market Committee meeting.

Federal Reserve Chair Jerome Powell has signaled a willingness to lower rates as labor-market strains emerge, reflecting the central bank's dual mandate to promote maximum employment while keeping inflation near 2 percent. Economists said the latest CPI reading will complicate but not necessarily derail a move toward easier policy.

"Even though a 25 basis point cut next week seems all but certain, the combination of firmer inflation and weaker labor market data complicates the Fed's picture going forward," said Jake Krimmel, senior economist at Realtor.com. Krimmel added that downward revisions to earlier job gains have revealed a labor market on "weaker footing than initially thought."

Revisions released earlier this week showed that job gains for the year through March may be as much as 911,000 fewer than previously reported. The most recent monthly payroll report also painted a softer picture: employers added 22,000 jobs in August, well below Wall Street expectations of roughly 75,000. Layoff announcements are up roughly 140 percent from a year earlier, further underscoring the shift in labor-market dynamics.

Mark Zandi, chief economist at Moody's Analytics, said the revisions and recent hiring trends point to a "labor recession" that is already unfolding and warned that further negative revisions or rising layoffs could push the broader economy into contraction. "If businesses start laying [people] off, then I think this will not just be a jobs recession, it will be an overall economic downturn," Zandi told Business Insider.

Some market strategists expect the Fed to prioritize the labor outlook over the modest uptick in inflation. Nathaniel Casey, investment strategist at Evelyn Partners, said the central bank is likely to view the latest inflation reading as less concerning than the payrolls data when weighing rate cuts. He noted uncertainty around tariffs and other policy developments but said he expects the Fed to resume cutting interest rates at the Sept. 17 meeting.

Treasury and equity markets have been sensitive to each data release and to the Fed's guidance. Inflation remaining above target complicates the timing and scale of potential cuts, while signs of labor-market stress increase the urgency for policy easing to prevent a sharper economic slowdown.

Policymakers will weigh the CPI figures alongside other incoming data, including employment reports, consumer spending, and global developments. The Fed has repeatedly emphasized a data-dependent approach to policy, and officials are expected to cite the totality of recent economic indicators when announcing their decision next week.

Investors and economists will also be watching for any language from the Fed about the path of future cuts, balance-sheet policy, and the central bank's assessment of how tariffs and trade policy are affecting inflation and growth. For now, the August CPI print leaves the central bank with a narrow evidence set that points to persistent inflation above target amid a cooling labor market, complicating the timing and scale of any easing cycle.