Weak Inflation Data Fuels Fed Rate Cut Odds as PPI Dips 0.1%

- U.S. wholesale prices unexpectedly drop 0.1% in August, defying Wall Street forecasts. - Market fully prices in Fed rate cut amid mounting political pressure. According to a September 10, 2025 report from the Bureau of Labor Statistics, U.S. wholesale prices unexpectedly declined in August. The Producer Price Index (PPI) fell by 0.1%, which contradicted Wall Street predictions of a 0.3% increase. Core PPI, which excludes food and energy costs, also dipped by 0.1%. Over the past year, the headline PPI rose 2.6%, reflecting a moderation in inflation trends. The weaker-than-expected inflation data spurred sharp market reactions, as the CME FedWatch Tool showed traders now fully expect the Federal Reserve to make a quarter-point interest rate cut at its upcoming meeting. The tool also indicated increased odds of a larger half-point cut. In response to the data, stock futures rallied, while Treasury yields dipped. This report intensified scrutiny on the Federal Reserve, which was already facing mounting criticism from President Donald Trump over its monetary policy. Following the PPI release, President Trump escalated his attacks on Fed Chair Jerome Powell, labeling him a "disaster" and reiterating his calls for more aggressive rate cuts. Furthermore, the inflation report coincided with recent revisions from the Bureau of Labor Statistics, which revealed that U.S. job growth had been overestimated by one million jobs in the 12 months leading up to March 2025. These adjustments underscore concerns about slowing economic momentum. Key PPI data revealed nuanced inflation trends. Service costs, a core indicator the Federal Reserve closely monitors, declined by 0.2%, driven by a significant 1.7% drop in trade services costs. Meanwhile, goods prices rose slightly by 0.1%, and core goods climbed 0.3%. While food costs increased marginally by 0.1%, energy prices fell by 0.4%. Amid slowing inflation and weaker labor market trends, these mixed signals add complexity to the Federal Reserve’s policy deliberations.