US inflation rises at fastest pace in seven months but Fed will 'stop short' of 50bp rate cut
He said: “US inflation increased to its fastest pace in seven months in August, in what is perhaps a tentative early sign that greater trade protectionism is beginning to filter its way through to higher consumer prices.
At least up until now, American businesses appear to have borne the brunt of the rising costs associated with the tariffs. There is clearly a limit, however, as to how long companies can continue to do this, and we think that it is only a matter of time before this burden is passed onto the consumer.
A September rate cut from the Fed is now almost as guaranteed as Monday after Sunday following the latest batch of lacklustre jobs figures, including today's torpid jobless claims data, which suggest that the US labour market is cooling much quicker than initially believed.
Yet, with inflation set to accelerate further, even if only temporarily, and with elevated long-term bond yields still a pebble in the Fed’s shoe, we think that officials will stop short of delivering a 50bp cut for fear of spooking Treasury investors.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
