Job Shock and Inflation Twist Put Fed in Spotlight

September 15, 2025

Investors widely expected a 25 basis point (0.25%) rate cut from the Federal Reserve as of last week. Since then, a labor market revision and two key inflation reports have been released. With just days before the Federal Open Market Committee decision, it’s worth reassessing where things stand. First, let’s review the reports from last week.

Job Growth - Largest Downward Revision on Record

The U.S. Bureau of Labor Statistics released a preliminary annual revision to the labor market. It showed the pace of job growth was meaningfully weaker than originally reported between April 2024 and March 2025. In this time period, the nation likely added 911,000 fewer jobs than originally reported. This marks the largest downward revision on record, notably affecting industries such as leisure and hospitality, retail, professional services, and information. The final adjustments will be released in February 2026. However, this shows a weaker labor market than originally thought.

Contrast Between Producer and Consumer Price Indices

Alongside this, the Labor Department released the August Producer Price Index (PPI). The PPI is a key gauge of inflation as it is an early indicator of future consumer price pressures. U.S. producer prices unexpectedly declined by 0.1% month-over-month, driven by a slight drop in the wholesale price of services. Over the past 12 months, the PPI rose 2.6%, down from July's 3.1% and notably below forecasts. This was welcome news for investors.

Turning to consumer prices, the Labor Department also released the August Consumer Price Index (CPI). The CPI measures the change in prices paid by U.S. consumers. Consumer prices increased 2.9% in August from a year earlier. This is higher than July’s 2.7% gain but in line with economist expectations. The 2.9% increase was the highest since the start of 2025.

Will Lower Rates Prevail?

Last week’s reports (particularly the labor market revision and producer price index) strengthened market expectations the Federal Reserve will cut rates at this week’s meeting. The base case is a 25 basis point cut, with a slight chance of 50 basis points. Beyond this meeting, the recent rise in CPI inflation and the potential for ongoing tariff-driven price pressures could shape the pace of rate cuts in the coming months.

Regardless of the Fed’s pace for rate cuts, short-term interest rates on cash and equivalents are likely to move lower. It remains an opportune time to put uninvested cash to work. We will continue to track the Fed’s monetary policy developments and the impact on portfolios. As always, please contact your advisor with any questions. Your financial success matters.