U.S. Economy at a Crossroads: Fading Job Growth and CPI's Role in Fed Decision
Slowdown in Job Creation Raises Alarm
Last week’s U.S. jobs report for August 2025 delivered a clear signal of weakness: just 22,000 new jobs were added—far below economists’ expectations of around 75,000. This marks one of the softest employment months in recent history.
Key highlights from the report include:
- Unemployment rose to 4.3%, the highest level since late 2021.
- June data was revised downward, showing a loss of 13,000 jobs, the first contraction since December 2020.
- Warnings are growing about a possible recession, as labor demand slows significantly in sectors like manufacturing, government, and retail.
- Markets interpreted the data as a catalyst for looser monetary policy; futures now fully price in a 25 basis point cut at the Fed’s September meeting, with increasing bets on deeper cuts later in the year.
Bottom line: The labor market is stalling. Weak job creation and rising unemployment are putting pressure on the Federal Reserve to act.
CPI Release on Thursday: The Inflation Watch
On Thursday, September 11, 2025, the Bureau of Labor Statistics will release the Consumer Price Index (CPI) for August—the last major inflation data before the Fed’s policy decision.
What Analysts Expect:
- Headline CPI: +0.3% month-on-month; Year-over-year: ~2.9% (up from 2.7% in July).
- Core CPI: Expected to remain steady, indicating continued pressure in services and housing components.
What It Means for the Fed:
- A ~0.3% monthly rise in CPI would likely not halt a quarter-point rate cut, given the weakening labor market and signs of easing in goods inflation and housing costs.
- However, a sharper-than-expected increase—especially in services—could embolden hawkish policymakers and temper rate-cut expectations.
Fed’s September Decision: On the Cusp of a Rate Cut
All signs point to the Federal Reserve cutting rates at its September 17 meeting—the first reduction since December. But how much?
Market Sentiment:
- Some analysts have revised their forecasts toward a 50 basis point cut, citing rapid labor market deterioration.
- Wall Street now sees a 25 bps cut as nearly certain, with a slim chance of a more aggressive 50 bps step.
- Investors expect approximately 75 basis points in cuts by year-end, though some warn this may be overly optimistic.
Fed's Balancing Act:
- Policymakers acknowledge the mounting labor market risks but continue to emphasize inflation control.
- Stable CPI around 0.3% would “be no barrier” to a 25 bps cut.
- If CPI acceleration surprises on the upside, the Fed might opt for a more modest 25 bps cut instead of a deeper move.
Implications—In Summary Table
| Factor | Summary |
|---|---|
| Jobs Data (August) | Only +22,000 new jobs; unemployment up to 4.3%; June revised to -13,000—pointing to weakening labor market |
| CPI Forecast | +0.3% MoM, 2.9% YoY headline; core inflation steady; readings suggest manageable inflation pressures |
| Fed Decision Outlook | Highly likely to cut rates on September 17. CPI stable supports 25 bps cut; risk of 50 bps cut if inflation remains tame and labor data weak |
Conclusion: A Delicate Balance
The U.S. economic backdrop heading into the Fed’s September 17 meeting is one of pronounced labor softness combined with inflation that may be easing—but remains a key consideration. If CPI aligns with expectations, a 25 bps rate cut is nearly assured; if inflation remains stubborn, the Fed may still cut—but gingerly.
Should CPI surprise on the upside, it could temper the scale of the cut. And if inflation undershoots, markets may start positioning for even more aggressive easing later in 2025.