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.
