Westpac have a detailed note out with what the US Federal Reserve's Federal Open Market Committee (FOMC) is facing at next week's meeting. It's a complex picture, I've tried to summarise:

US labour market and inflation — key takeaways

  • Weak August jobs data

    • Nonfarm payrolls rose just 22k in August.

    • June/July revised down by 21k.

    • Three-month average: 29k vs 168k average in 2024.

    • Current pace sits at the bottom of St. Louis Fed breakeven range (32k–82k).

    • Unemployment rose to 4.3% (from 4.2%) as participation edged higher.

  • Annual benchmark revision

    • Nonfarm payrolls revised down 911k as of March 2025.

    • Implies job creation over prior year was half the initial estimate.

    • Raises risk that current employment is overstated.

  • Inflation pressures

    • Headline CPI: +0.4% m/m, 2.9% y/y.

    • Core CPI: 3.1% y/y, 3.6% annualised.

    • Tariff passthrough:

      • Core goods inflation rising — 1.1% annualised over 6 months, ~3% over 3 months.

      • Retailers/wholesalers absorbing costs so far, but tariff burden doubled in August and unsustainable.

    • Services inflation: ex-energy +3.6% y/y, +2.9% 6-month annualised.

    • Inflation outlook: both goods and services likely to stay firm.

  • Policy outlook

    • FOMC meeting next week: 25bp cut widely expected.

    • Key focus on economic projections and risk guidance.

    • Markets want Fed to prioritise employment downside risks.

    • Fed officials signal greater concern over sticky inflation and path back to target.

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Expectations are for a Federal Reserve rate cut. Labour market concerns look to be outweighing inflation concerns for now. Or maybe the political heat has just gotten too much.

Source: Investing Live