Reaction Roundup: SA analysts, experts weigh in on August CPI

For Wall Street, the spotlight on Thursday was on the August consumer inflation report. A largely hot-to-in-line reading reinforced expectations for Federal Reserve interest rate cuts next week.    

The headline consumer price index (CPI) for August came in at +0.4% M/M, higher than the expected +0.3% figure and accelerating from July's +0.2% reading. Meanwhile, core CPI stayed flat from the prior month at +0.3%, matching consensus. On a Y/Y basis, headline CPI came in-line and picked up from July, while core CPI climbed 3.1%. 

Following a surprisingly weak producer inflation report on Wednesday, this morning's CPI print made little impact on rate cut odds, with markets continuing to see a roughly 90% chance of a 25 basis point cut at the conclusion of the Fed's monetary policy committee meeting next week.     

Wall Street's three major averages scaled new intraday record highs after the CPI report, with the blue-chip Dow (DJI) hitting 46,000 points for the first time ever. Here are some exchange-traded funds that track the Dow (DJI) and the benchmark S&P 500 index (SP500): (NYSEARCA:DIA), (NYSEARCA:DDM), (NYSEARCA:UDOW), (NYSEARCA:DOG), (NYSEARCA:DXD), (NYSEARCA:SDOW), (NYSEARCA:SPY), (NYSEARCA:VOO), (NYSEARCA:IVV), (NYSEARCA:RSP), (NYSEARCA:SSO), (NYSEARCA:UPRO), (NYSEARCA:SH), (NYSEARCA:SDS), and (NYSEARCA:SPXU).

See below for various reactions to the August CPI:

Mike Zaccardi, Seeking Alpha analyst since 2022: 

"August's CPI report was very close to estimates, with moderate tariff impacts felt thus far. CPI for used cars, airfare, and eggs was strong, while the so-called supercore rate eased from July's hot reading. Taken with the cold PPI report, I expect the Fed to issue a quarter-point cut next week.

Imputing real-time shelter prices, U.S. inflation is running very close to 2% today, though core goods CPI will hook higher into year-end as tariffs seep down to store-shelf price tags. I'm encouraged to see stocks reacting positively despite bearish seasonal trends."

Sarah House, senior economist at Wells Fargo:

"For the FOMC, a core CPI reading of 0.35% and a three-month annualized rate of 3.6% is not what the Committee wants to see as it prepares to cut rates for the first time in 10 months. That said, as we have highlighted elsewhere, the downside risks to the labor market have grown considerably over the past couple of months, creating more urgency to act to keep the jobs market from falling apart.

The FOMC also may take comfort in the more benign PCE inflation implications from today's CPI report and yesterday's PPI report. Taken together, we project that the PCE and core PCE deflators rose 0.26% and 0.22%, respectively, in August."

Skyler Weinand, chief investment officer at Regan Capital:

"Thursday's CPI was in-line with expectations and will not derail the Federal Reserve's expected rate cut at the September meeting. It's clear that inflation is relatively calm, which gives the Fed the flexibility to focus more on stemming ongoing weakness in the labor market. While inflation is still running above ideal levels, the full employment portion of the Fed mandate is carrying much more weight.

While the Fed will say that each mandate holds equal weight, full employment will always hold precedence as it also has a major influence on consumer prices. Prices are irrelevant if people don’t have income in the first place."

Jason Furman, former deputy director of the U.S. National Economic Council:

"The whiff of stagflation is getting stronger as the unemployment rate continues to rise, job growth slows, and now inflation continues to pick up. There are no good options for the Fed given the set of circumstances we're facing."

Diane Swonk, chief economist at KPMG US:

"The PPI and CPI data suggest that the PCE measure of inflation will come in hot as well. Look for 0.3% overall and with rounding we could see core rise 0.4%. That would push PCE to a 2.8% annual gain from 2.6% in July, its hottest pace since March 2024.

Fed has duel mandate. Price stability and full employment. We are missing on both BUT can’t sustain full employment without price stability. That leaves the Fed at odds with itself, with doves betting the boost in price is transitory and lobbying for an outsized cut & hawks pushing to stand pat. 

We could easily see dissents move in opposite directions at the September meeting. The last time we saw that was September 2019, on heels of 2018-19 trade war."

Joseph Brusuelas, principal and chief economist at RSM US LLP:

US August CPI: Stagflation continues to be the primary narrative underscoring the American economy. It has been four decades since Americans experienced stagflation. One gets the sense that rising food and energy costs that provides the daily and weekly scoreboard upon which consumer make economic decisions are moving in the wrong direction. 

A slow, steady, and stubborn increase in service sector prices was the major driver of the 0.4% upside-surprising in the Consumer Price Index. In addition, one can observe a large increased in imported food costs, goods prices as well as motor vehicle and parts costs that are a function of tariffs.

Demand for discretionary services and upward price adjustments to meet that demand strongly suggests an economy that is not near falling into recession. As such, Fed rate cuts are likely to be live options at each of the three meetings remaining in 2025 with a cut at the September meeting baked in the cake while rate cuts at the October and December meetings are yet to be determined."

Renaissance Macro Research:

"Core goods CPI less cars rose just 0.13% in August, or 1.6% SAAR, the weakest pace in several months. This lends support to the notion that tariffs largely are a one-time shock to the price level. Less pressure in August from household furnishings and recreation commodities."