U.S. Producer Prices Drop Amid Tariff Impact, Eyes on Fed Rate Cut

In August, U.S. producer prices fell unexpectedly, hinting at domestic firms absorbing tariff impacts and signaling softening demand. The Federal Reserve is poised to cut interest rates at its upcoming meeting due to these pressures. Retailers reportedly bear tariff costs, while consumer inflation hints at stagflation risks.

In August, U.S. producer prices recorded an unexpected decline, particularly influenced by narrowing trade service margins and modestly rising goods costs. This trend indicates that domestic companies might be absorbing some tariff impacts, accompanied by weakening domestic demand amidst the struggling labor market.

The Federal Reserve is anticipated to cut interest rates at its policy meeting next Wednesday, following the pause in January. Economist Christopher Rupkey pointed out minimal price pressures at the producer level despite ongoing tariffs.

Retailers appear to be absorbing tariff costs, consistent with earnings reports anecdotal evidence. With the Producer Price Index for final demand dipping 0.1%, and consumer prices expected to rise 0.3% month-over-month, the Fed's rate cut seems inevitable amidst deteriorating labor market conditions and potential economic stagflation.

(With inputs from agencies.)