U.S. August CPI was broadly in line with expectations, but monthly price gains accelerated compared to July. Headline inflation rose by 2.9% y/y (0.4% m/m) while core increased by 3.1% y/y (0.3% m/m), remaining above the Fed’s target level of 2%. Tariff-exposed categories like cars and apparel were firm; less-exposed goods softened. In contrast, both headline and core PPI undershot consensus forecasts. Headline producer prices fell 0.1% m/m, with the previous month’s figure revised lower.
Regarding other macroeconomic data, GDP for Q2 was revised to be slightly higher than the initial estimate of 3% y/y due to higher levels of private investment and consumption. On the other hand, the U.S. labor market continues to show signs of cooling.
The Trump administration has continued to enact tariffs with a 50% tariff on Indian imports into the U.S. going into effect. This includes a 25% penalty for India’s continued purchase of Russian oil, the proceeds of which are a key source of funding for Russia’s war on Ukraine.[1] The effects of this tariff were already being felt, with the Indian rupee falling to its lowest level ever against the dollar.
Corporate earnings in Q2 2025 came in stronger than anticipated across the U.S. and Europe. This demonstrates strong operational resilience despite macroeconomic headwinds, including volatile tariff policy and ongoing inflation uncertainty. U.S. companies reported a 14% year-over-year profit increase, more than double what analysts initially forecasted. Adding to that momentum, revenue growth came in at 6%, which is the fastest pace of growth seen since 2022. The Magnificent Seven mega-cap tech companies stood out, delivering an impressive 26% surge in profits. Executives remain confident in navigating tariff-related costs. However, margin compression and weakening consumer demand could pose a threat to large-cap earnings and analyst forecasts in the U.S.
Nonfarm payrolls rose by 22,000 in August, well below expectations and signaling a marked slowdown in job creation. This was compounded by the fact that the unemployment rate edged up to 4.3% while manufacturing payrolls declined by 12,000.
U.S. initial jobless claims, the weekly figure for new unemployment filings, rose more than expected in early September, reaching the highest level since 2021. Two-thirds of the increase came from Texas, limiting broader labor market implications. Annual BLS revisions cut previously reported job growth to March 2025 by 911k - a larger-than-usual adjustment.
Together with softer labor demand, wage growth moderated with hourly earnings up 0.3% month-over-month and 3.7% year-over-year. The combination of slowing wage growth and job creation signaled that the U.S. economy could be losing momentum. The combination of inflation and labor data led the Fed to decide to cut the Fed funds rate by 25 bps on September 17, 2025.
A steepening of the U.S. yield curve and rising volatility across global sovereign debt markets signals growing investor unease. In the U.S., short-end yields fell following softer labor market data released in early September with the two-year yield falling to 3.49%, its lowest since September 2023, while long-end yields remained elevated, driven by persistent fiscal concerns and inflation uncertainty. This turbulence has echoed across global bond markets. In Japan, long-dated yields hit multi-decade highs, and the UK showed a similar story with Gilt yields spiking with long-end rates hitting 27-year highs. While in France, yield spreads widened, signaling fiscal fragility and political instability as the French government collapsed on September 8th in a no-confidence vote.
In late August, the U.S. Court of Appeals for the Federal Circuit ruled that reciprocal tariffs were not permitted under the Emergency Economic Powers Act. However, the tariffs will stay in place for now. The U.S. Supreme Court is set to review the administration’s use of emergency tariff powers under the Emergency Economic Powers Act in November. Other avenues are available to the U.S. administration to increase trade barriers if the Supreme Court upholds this decision.
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