^{Photo: The Edge Malaysia}

Wholesale prices in the United States fell slightly in August, offering the Federal Reserve room to consider an interest rate cut at its meeting next week. The Bureau of Labor Statistics reported that the producer price index (PPI) declined 0.1% for the month, following a downward revision of July’s 0.7% increase. This drop was well below Dow Jones estimates, which had predicted a 0.3% rise.

On a year-over-year basis, the PPI rose 2.6%, signaling that while inflationary pressures are easing, they remain above the Fed’s 2% target. Core PPI, which excludes volatile food and energy prices, also decreased by 0.1%, defying forecasts for a 0.3% increase. Excluding food, energy, and trade, PPI gained 0.3% month-over-month and was up 2.8% compared with last year.

Services Prices Lead Decline

Services prices, a key metric the Fed monitors for monetary policy, dropped 0.2% in August, marking a notable slowdown. Trade services fell 1.7%, while margins for machinery and vehicle wholesaling tumbled 3.9%. These declines helped offset modest gains in goods prices, which rose 0.1%, with core goods up 0.3%.

Food costs at the wholesale level increased 0.1%, but energy prices decreased 0.4%. Tobacco products, impacted by tariffs, jumped 2.3%, while portfolio management costs rose 2%, slowing from July’s 5.8% spike.

Chris Rupkey, chief economist at Fwdbonds, described the report as a relief for markets, noting, “Inflation barely has a heartbeat at the producer level. There is almost nothing to stop an interest rate cut from coming now.”

Market Reactions and Fed Outlook

Following the report, stock market futures moved higher, while Treasury yields edged slightly lower. Futures market pricing currently reflects a 100% probability of a rate cut at the Federal Open Market Committee meeting, the first since December 2024. Odds for a larger half-percentage point reduction rose slightly to 10%, according to the CME Group’s FedWatch tool.

The Fed has been closely monitoring the impact of tariffs, introduced under President Trump, on inflation. While historically tariffs have not caused lasting price surges, their broad application has raised concerns about inflation persistence.

Labor Market Considerations

Concerns over employment have increased after a recent BLS report revised downward the number of jobs created in the year preceding March 2025 by nearly 1 million. While the Fed has characterized the labor market as solid, the slowdown adds pressure to consider easing monetary policy.

Officials have emphasized that cooling housing and wage pressures should gradually reduce inflation. With services prices declining and wholesale costs easing, the stage is set for the Fed to signal a possible rate adjustment.

The upcoming meeting will not only determine the short-term interest rate but also provide updated guidance on the Fed’s economic outlook and future monetary policy direction. Analysts and investors will be watching closely for any signals that policymakers are ready to pivot toward easing.