NEW YORK, USA – Next week, the US Federal Reserve will hold a two-day policy meeting to decide whether to lower interest rates.
The meeting comes amid growing pressure on central banks following a months-long suspension of fees.
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US President Donald Trump recently dismissed Governor Lisa Cook on a mortgage fraud claim. She was in court and escalated his loud and repeated criticism of Federal Reserve Chairman Jerome Powell.
Emphasizing independence from political influence, the Fed will weigh new economic data, taking into account the next move: Benchmark interest rates remained between 4.25% and 4.50% since December.
So far, the Fed has been stable and its stance maintains flexibility to respond to economic shocks associated with changes in trade policy. But many economists believe interest rate cuts are imminent now.
They point to signs of the cooling labor market and tariff-related pressures on inflation as factors that can support rates of decline rather than political pressure.
“I think the Fed made it pretty clear in September that they’ll cut fees, and the market certainly hopes for that,” Daniel Hornn, a policy fellow at the Stanford Institute of Economic Policy and former deputy director of the National Economic Council, told Al Jazeera.
CME FedWatch tracks the federal reservoir’s policy moves, increasing the likelihood that a quarter of a 1% point will be reduced to 94.5%, echoing JPMorgan’s research last month.
“For Federal Reserve Chair Jerome Powell, risk management considerations may go beyond balancing employment and inflation risks. And we now see that we are moving forward with the next 25 basis points cut in the September meeting.”
Prices will rise
According to the Ministry of Labor’s Consumer Price Index (CPI) report, consumer prices rose 0.4% from the previous month in August, the sharpest increase in seven months.
Profit increased by 0.2% in July. Economists surveyed by Reuters predicted a monthly increase in core CPI of 0.3%.
Energy costs rose 0.7%, and fuelled a 1.9% jump with gasoline. Airfares rose 5.9%, apparel prices rose 0.5%, shelters rose 0.4%, grocery prices rose 0.6%, and restaurant meals rose 0.3%.
Some products have seen a particularly sharp increase. Coffee prices rose 3.6% that month as Brazil, the world’s top coffee exporter, redirected cargo from the US following new tariffs.
The Producer Price Index (PPI), which tracks the prices businesses receive on goods and services, has shown coffee at nearly 7% since July and over 33% over the past year.
Beef has a comparable phenomenon, with the US relying heavily on Brazil. CPI data showed an increase of 2.7%, while PPI measured a monthly increase of 6% and an annual increase of 21%.
Overall, the PPI is 0.1% slipping, suggesting that some businesses are absorbing tariff costs rather than passing it over to consumers. Service prices fell 1.7%, offsetting a 0.1% increase in commodity prices as the margins for machinery and vehicle wholesalers fell by 3.9%. It came after the wholesale inflation rate was revised to 0.7% in July. This was far better than economists expected.
Still, businesses are beginning to warn that they cannot continue to absorb higher costs. In recent weeks, Campbell’s Co, which makes Campbell’s soup and goldfish crackers, and Procter & Gamble, have said they plan to raise the prices of consumer goods in the coming months as tariff pressure continues.
The labor market falls
The US labor market, a key factor in the Federal Reserve’s interest rate decisions, is rapidly cooling down.
Last week, around 263,000 people filed their first unemployment claims. This was the most in four years, shown by Labor Bureau data released Thursday.
On Tuesday, the Bureau of Labor Statistics revised its employment benefits over the past few months and when the US economy added 911,000 fewer jobs than previously reported between April 2024 and March 2025.
That’s all reflected in the number of poor jobs last week. In August, the economy only added 22,000 jobs, focusing on healthcare (added 31,000 jobs) and social assistance (added 16,000 people). The Labor Bureau reported that the unemployment rate rose to 4.3%.
In the revised version, employment growth in July was slightly stronger at 79,000, up from 73,000, but in June it reduced its small profit to 13,000 losses.
“The number of jobs these days was a revised version of the previous numbers, but it was really problematic for the economy,” Michael Klein, professor of international economic affairs at Tufts University’s Fletcher School, told Al Jazeera.
Job openings and sales have also declined, leaving more unemployed positions than those available for the first time since April 2021.
Reports from Challenger, Gray & Christmas highlighted the tension, clashing with a 39% job cut between July and August. Private pay growth has also slowed down, according to the ADP National Employment Report. This showed that there were only 54,000 jobs, down from 106,000 the previous month.
Competing power
High inflation usually encourages higher interest rates. This discourages borrowing and spending and helps to curb prices.
“The Fed is in a very difficult position due to both weakening the labour market and evidence of higher inflation. Usually, if the Fed is facing a weaker labour market, they will want to cut interest rates.
The labour market is already considering consumer spending. Layoffs rise and hiring slower jobs lead to shoppers being cautious, and the latest consumer confidence index shows plans to buy big tickets and discretionary items are slipping.
Trump’s changing tariffs and hard-line immigration policies have made businesses stuck in “waiting” mode, increasing uncertainty.
“We are looking at immigration and tariff policies that have the simultaneous effect of raising labour market prices and slowing growth,” Hornn said.
