U.S. inflation outlook holds steady ahead of August CPI and Fed rate decision

Traders Union
All News
Financial News
U.S. inflation outlook steady

Highlights

Economists expect August CPI to remain unchanged from July’s 3.4%, with annual wage growth slowing to 3.1%, lagging behind inflation.
Brent crude prices surpassed $100 a barrel for the first time since July, driving energy costs 14.7% higher year on year and fueling inflation concerns.
CME FedWatch indicated greater market expectation of a Fed rate hike at next week’s meeting as persistent inflation and strong job growth challenge policymakers.

August CPI release and rate outlook

As reported by Business Insider, the Bureau of Labor Statistics is set to publish the August CPI report at 8:30 a.m. ET, with markets watching for signs of whether price pressures are easing enough to keep the Federal Reserve on hold next week.

July inflation slowed from 3.5% to 3.4%, and economists expect August to show no further change. Average hourly earnings rose 3.1% from a year earlier in August, the slowest pace since 2021, leaving wage growth below inflation if the CPI estimate holds.

The report arrives just days before the Federal Open Market Committee's next meeting. With job growth stronger than expected and unemployment still low, persistently elevated inflation could strengthen the case for the first interest-rate hike since 2023.

The Fed kept rates unchanged at its July meeting after cutting rates in December 2025. Fed Chair Kevin Warsh said in an August speech at Jackson Hole, Wyoming, that a majority of policymakers preferred to wait for fresh information on supply chains, investment flows and geopolitics before deciding whether a rate change was warranted.

Energy costs and pressure on workers

Energy remains a key component in the CPI outlook as the war in Iran and disruptions in the Strait of Hormuz continue to affect markets. Energy prices have been rising at a slower annual pace in recent months but remain elevated, increasing 14.7% from a year earlier while falling 1.5% month on month in July.

Brent crude has climbed above $100 a barrel this week for the first time since July, adding to concerns that energy could keep broader inflation under pressure. CME FedWatch, which tracks rate expectations based on trading activity, showed before the BLS release that markets see a hike next week as more likely than another hold.

Laura Ullrich, director of economic research in North America at Indeed Hiring Lab, said slower wage growth is not surprising given limited turnover in the labor market. She said employers facing less pressure to retain staff are less likely to lift wages quickly.

ZipRecruiter economist Nicole Bachaud said weaker wage momentum is leaving many workers financially exposed. A survey by the job-search platform found 40% of job seekers are struggling financially, a trend she said is affecting confidence, labor-market engagement and workers' overall outlook.

In our earlier coverage of the August U.S. Consumer Price Index outlook, we explained that economists expected headline CPI to accelerate on the month while holding near 3.4% year over year, with gasoline and broader energy costs playing a central role. We also noted that with the Fed’s policy meeting approaching, hotter inflation inputs and resilient employment were tilting market expectations toward a quarter-point rate hike and keeping rate forecasts highly sensitive to incoming data.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.