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
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Weak August jobs data
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Nonfarm payrolls rose just 22k in August.
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June/July revised down by 21k.
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Three-month average: 29k vs 168k average in 2024.
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Current pace sits at the bottom of St. Louis Fed breakeven range (32k–82k).
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Unemployment rose to 4.3% (from 4.2%) as participation edged higher.
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Annual benchmark revision
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Nonfarm payrolls revised down 911k as of March 2025.
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Implies job creation over prior year was half the initial estimate.
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Raises risk that current employment is overstated.
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Inflation pressures
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Headline CPI: +0.4% m/m, 2.9% y/y.
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Core CPI: 3.1% y/y, 3.6% annualised.
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Tariff passthrough:
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Core goods inflation rising — 1.1% annualised over 6 months, ~3% over 3 months.
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Retailers/wholesalers absorbing costs so far, but tariff burden doubled in August and unsustainable.
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Services inflation: ex-energy +3.6% y/y, +2.9% 6-month annualised.
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Inflation outlook: both goods and services likely to stay firm.
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Policy outlook
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FOMC meeting next week: 25bp cut widely expected.
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Key focus on economic projections and risk guidance.
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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
