Price growth in the world’s largest economy slowed again last month, according to the US Bureau of Labor Statistics figures published on Wednesday, but only as much as expected, leaving the Federal Reserve’s September rate decision uncertain.
Prices rose 0.1% on the month after falling 0.4% in June, taking the annual rate to 3.4%, well below May’s 4.2%. Core prices, stripping out food and energy, rose 0.2% after being flat in June, easing to 2.5% from 2.6% annually.
Every figure matched the Dow Jones consensus, though the annual falls owe much to comparisons with a strong summer in 2025, and monthly momentum picked up from June’s soft readings.
US stock futures moved higher immediately after the release, while traders trimmed their bets on tighter policy.
The odds of a September rate hike on CME’s FedWatch tool also quickly fell from 48% to 42%, but money markets continue to price in a scenario that is difficult to read with probabilities not far from a coin toss.
A committee at odds with itself
The Fed held its benchmark rate at 3.50% to 3.75% on 29 July, a fifth straight pause, but three regional presidents dissented in favour of a quarter-point rise, the most in one direction in nearly a decade.
Chair Kevin Warsh, who has scrapped forward guidance and declined to publish his own projections, said the Fed would “deliver price stability” and not hesitate to act, having called inflation a choice earlier.
The Fed’s other mandate pulls the opposite way.
The economy shed 23,000 jobs in July against forecasts of roughly 83,000 added, while average hourly earnings grew 3.2% over the year, leaving pay behind prices and reviving stagflation talk. Unemployment, at 4.1%, is close to most estimates of full employment.
Cleveland Fed president Beth Hammack, a dissenter, said on Monday a single quarter-point move would achieve little and several may be needed, arguing rates are not meaningfully restraining growth.
Her New York counterpart, John Williams, expects inflation to fall this half. Investors have been similarly split, with hike odds sitting either side of 50% this week, against 67% only a week ago, and now shifting again after the latest figures published by the US Bureau of Labor Statistics.
The oil problem has not gone away
The bigger threat to disinflation lies in the Gulf.
The Strait of Hormuz remains largely closed, with crossings at 6 to 11 vessels a day against 130 to 140 before the war, and talks to reopen it have stalled over reparations demands, with US President Donald Trump saying Iran should also pay for damages it is responsible for in Lebanon, Syria, Yemen and Gaza.
Brent crude has gained about 5% since Friday to its highest since 31 July, some 25% above early July’s lows.
Energy drove US inflation to 4.2% in May, and Goldman Sachs estimates airfares rose 2% last month as jet fuel costs fed through.
US President Donald Trump has signalled he will let economic pressure on Tehran build rather than launch a fresh campaign, telling Axios that Washington is “low-keying it,” implying a long standoff and a lasting premium on crude.
Wednesday’s figures are not the last word on inflation, producer prices follow on Thursday, retail sales and sentiment on Friday, and another jobs report and inflation reading arrive before policymakers meet in September.