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- A Weak Jobs Report ... Just What Powell Needed
A Weak Jobs Report ... Just What Powell Needed
The Macro Institute's Weekly Economic Primer
The Macro Institute
September 08, 2025
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All eyes will be on the August CPI release this week. It's hard to see how it could alter the odds of a Fed rate cut this month given Friday's payroll report. Still, it should provide some info on the inflationary impact of tariffs. Inflationary pressures are already showing up in the earlier stages of the supply chain per the rise in the Prices Paid series from both regional and national PMIs in recent months.
The NFIB Small Business report is on the docket for Tuesday, and our first read for September is coming later in the week from the Michigan sentiment survey. Despite the light week, there’s clearly some key data points to look forward to in the days ahead.
The Macro Week In Review
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The Macro Week Ahead
💼 A Weak Jobs Report … Just What Powell Needed
For the Fed Chairman, who effectively committed to a September rate cut during the Jackson Hole meeting, last week’s weak labor market data was exactly what he needed. Investors had already priced in at least 50 bps of easing by December, and the data supported this expectation. The most forward-looking labor market gauge, the Employment component of the ISM Manufacturing survey, remained stuck in contraction territory with another sub-45 reading. Job openings softened, job cuts exceeded forecasts, the unemployment rate ticked up 10 bps to 4.3%, and payroll gains came in at just 22k.
Following the payrolls release Friday, bond yields dropped alongside the S&P 500. This was a break from the recent “bad news is good news” cycle. Still, given the path of interest rates over the last two years, this labor market slowdown is unfolding right on schedule. The Fed already considers its policy rate restrictive, and after last week’s data, markets are now pricing in a small chance of an even deeper cut of 50 bps in September, although 25 bps is all but certain. Over time, lower interest rates tend to support hiring trends.
The Fed’s dual mandate requires balancing inflation and employment, yet the two appear set to diverge further in the near term. Conceivably, the rate-cutting cycle could begin with CPI still 100 bps above target and climbing, setting up a tug of war for the weeks ahead.
📆 The Week Ahead
Markets will be laser focused on inflation data this week. On Wednesday at 8:30 am, the Producer Price Index (PPI) for August is due, following July’s 3.3% rise. Very short-term indicators of channel supply vs. demand point to continued upward pressure. On Thursday, the focus shifts to CPI. Core CPI (which strips out food and energy) ran hot in July at 3.1%.
Leading inflation signals remain firm. Regional PMI Prices Paid indices point to CPI trending higher into 2025. Tariffs are one driver, but not the only one. Shelter inflation is running at +3.5%, medical costs north of 4%, and utilities in the low teens. Consumers may feel the squeeze, but the Fed continues to frame tariffs as a one-time adjustment rather than a persistent inflationary force. From a rate-of-change perspective, inflation growth is is not expected to normalize until late 2026 or 2027.
The Fed appears willing to tolerate inflation running above its 2% target for an extended period. The Fed has signaled it would tighten again only if inflation expectations rose materially and risked a wage-price spiral. For now, that threshold has not been met.
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