Trending
Jobs and Inflation Are the New IcyHot—But Without the Relief
August brought mixed inflation data and clear signs of a softening job market. Competing economic signals are arriving just in time for the Federal Reserve’s September 17 meeting, where rate cuts are widely expected.
The Consumer Price Index (CPI) rose 2.9% year-over-year, up from 2.7% in July, while core CPI remained relatively steady at 3.1% (+0.06%). Meanwhile, the Producer Price Index (PPI) cooled to 2.6% from 3.1%, hinting that upstream price pressures are easing despite choppy month-to-month readings. Tariffs could still nudge prices higher, but for now, inflation seems to be taking the scenic route to its eventual 2026 peak.
Labor data is telling a different, and more troubling, story that may keep Fed officials up at night. The U.S. Bureau of Labor Statistics revised its prior job creation estimates downward by 911,000 for the 12 months through March, and recent monthly reports have shown overtly weak job growth through the summer. Initial jobless claims triggered concern but appear to be a localized aberration in Texas (more on this below). The unemployment rate remains a relatively tame 4.3%, but the labor force participation rate has slipped to 62.3% from 62.7% a year ago. In short: fewer workers, slow hiring, and more frustration.
Markets are already moving ahead of the Fed’s own projections, betting on faster and deeper rate cuts than those outlined in the June Summary of Economic Projections. The yield on the 10-year U.S. Treasury briefly touched 4.0%, matching April’s lows, as bond traders rushed to position for falling rates. This momentum in fixed income has helped push U.S. investment-grade bonds up 6.5% year-to-date.
Lower borrowing costs could buoy the economy and boost corporate profits heading into 2026. They’ve already lifted spirits on both Wall Street and Main Street. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all hit new record highs this past week. Meanwhile, the consumer lending market is primed for a surge as falling mortgage rates draw both new and existing borrowers to refinance or take out new loans. This could unlock meaningful economic activity and offer much-needed relief for household budgets.
What This Means for Investors
The Fed appears poised to pivot from holding steady to cutting rates. While this move risks reigniting inflation, it also supports further upside for both bonds and equities. Volatility will likely rise as markets digest slower potential growth and easier monetary policy. Investors should stay diversified across both traditional and alternative assets, favor high-quality U.S. stocks, and keep some dry powder ready for inevitable pullbacks.
Pockets of froth and exuberance are surfacing more frequently in both large and small companies. Stay disciplined, stay alert, and don’t hesitate to trim individual positions on melt-ups.
Market Activity
Stocks
Fixed income
Economic Reports
- Thursday’s initial jobless claims spooked everyone with a huge week-over-week explosion higher. It turns out, this was due exclusively to Texas data, which was either last-minute filings for flooding disaster unemployment assistance or fraud. Either way, when we exclude that data, the report was totally normal.
Via @Bespokeinvest
- Consumer sentiment, as measured by the University of Michigan, slipped to 55.4 from 58.2. I find it hard to take UMich at their word and would prefer to watch what consumers really do vs what they say in an increasingly untrustworthy survey.
- Numbers to watch for the week of September 15th
Last week
Next week
Earnings Releases
- Oracle exploded higher this past week despite missing earnings. Their guidance is honestly hard to believe, but it sent the stock flying regardless, +36% the day after. It is starting to come back down to earth, but is still +21% since Tuesday’s close.
- Kroger delivered mostly strong results and raised guidance, which speaks to some resilience from consumers.
Last week
Next week
Recommendations
- Can Economics Explain the Rise and Fall of the British Aristocracy? | Excellent timing for this piece as the latest Downton Abbey movie hits theaters.
- The US is unlikely to drop into recession | Great summary of the Boston Fed’s work on why the US remains Teflon. Even quicker summary: High-income households won’t stop spending.
- In Stablecoins We Trust? | Measured and well-researched view on stablecoins from UChicago. There are still a lot of regulatory questions. In my opinion, the most important point needs more exploration, but nails the major risk of digital asset expansion: “What we don’t want is them to intermingle so they both go down.”
Chart(s) of the week
Through January, markets are pricing in three rate cuts. One cut seems a sure thing on Wednesday, but nothing is promised after that. We’re going to keep playing this 'will they', 'won’t they' game every month as new labor, manufacturing, inflation, and consumer spending data roll in.
Corporate margins aren’t behaving like a recession is coming. 2026 will have a clearer economic landscape and an easier tax and regulatory environment. We might still skate through this one (doesn’t mean there won’t be Main St. pain, though).
Via Daily Chartbook
The gerontocracy is still cooking and dominating consumption. As long as home and market values keep growing (and recovering), the silver tsunami will drown us in RMD dollars. Just watch out for that Gen Z angst…
Related: Stagflation Watch: How a Slowing Labor Market Could Trigger the Fed’s Next Move