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U.S. Wholesale Prices Edge Higher In August, But Fed Still Expected to Cut Rates

Topline: The latest U.S. wholesale pricing data rose slightly in August, showing that inflation broadly remains low—likely prompting the Federal Reserve to continue with its planned rate cut next week as it tries to stimulate a slowing economy.

  • The Labor Department said on Wednesday that the Producer Price Index (PPI), which is used to measure inflation pressures before they hit consumers, unexpectedly rose 0.1% last month.
  • While the index shows that the cost of goods and services remain somewhat stable, it also indicates that higher tariffs on Chinese imports could raise consumer prices further and cause inflation to rise.
  • The wholesale cost of U.S. goods decreased 0.5%—the largest drop in seven months—with prices falling for food, liquor and gas. 
  • That was offset by a 0.3% rise in the cost of services, including record increases in gambling receipts, hotel room rentals and insurance.
  • Low inflation means PPI data is unlikely to change market expectations that the Fed will cut interest rates again next week, for the second time this year, as it looks to reduce damage caused by the trade war.

Key Background: Back in July, the Federal Reserve cut its key interest rate for the first time since 2008. The market now widely expects an imminent second rate cut, as ongoing uncertainty from Trump’s trade war with China, slower global economic growth and low inflation all continue to trouble the U.S. economy. 

Crucial Quote: President Trump kept up his criticism of the Federal Reserve on Wednesday in another tweet, blaming the country’s economic problems on the “Boneheads” at the central bank who won’t lower rates fast enough. The president went on to argue that the Fed, whose current policy rate lies in the 2% to 2.25% range, should go further and reduce rates to zero.

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