Inflation leading indicator "explodes", Fed interest rate cut prospects face uncertainties

On August 15, the report released by the U.S. Bureau of Labor Statistics (BLS) on Thursday showed that driven by soaring profit margins, the wholesale price increase in July far exceeded expectations, which may indicate that inflation remains a threat to the U.S. economy. Service inflation is the main factor driving the overall PPI increase, with service prices rising 1.1% in July, also the largest increase since March 2022. The report indicated that despite weak demand in the first half of this year, businesses are adjusting the pricing of goods and services to help offset costs associated with the U.S. tariff increases. How much of the tariff costs businesses pass on to consumers will be a key factor affecting the future direction of Interest Rate. Due to Trump's policies, especially the economic uncertainty brought by tariff policies, companies have reduced the number of new hires. However, relatively low initial claims suggest that employers are not laying off workers on a large scale. Earlier this week, the July CPI report was generally in line with expectations, and the market is almost certain that the Fed will lower the key interest rate at the September meeting. After the latest U.S. economic data was released, traders reduced their bets on the Fed cutting rates in September. Meanwhile, some analysts are still downplaying the significance of last month's weak employment data, believing that the slowdown in the job market is due to a weakening labor supply caused by Trump's immigration policies. If this is the case, then Powell's decision to hold steady is correct, as cutting rates has no effect on the weak labor supply.