Weekly Update 9/11/2026: US Core Inflation Comes in Slightly Higher than Forecasts Setting up the Fed to Raise Rates Next Week
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- IBM and Lockheed Martin announce the formation of a quantum innovation hub in Switzerland
- Apple unveiled the company’s first foldable smartphone
- Oracle releases earnings beating profit and revenue expectations
- JP Morgan CEO Jamie Dimon meets with UK Chancellor of the Exchequer John Healey
Domestic Economic News
A key gauge of US consumer prices rose by more than expected last month, bolstering the case for Federal Reserve officials to raise interest rates next week. The consumer price index, excluding food and energy, climbed 0.3% in August from a month earlier, according to Bureau of Labor Statistics data out Friday. The median estimate in a Bloomberg survey called for a 0.2% increase. On an annual basis, it advanced 2.4%, which was inline with expectations. Traders boosted expectations for a Federal Reserve interest-rate hike to a 90% chance of a move next week and two increases fully priced in by the end of the year. Interest-rate swaps showed traders ramped up their bets on higher borrowing costs in the months ahead as evidence mounted that sticky price pressures would push Chairman Kevin Warsh’s central bank to act. Treasuries initially dropped, then rebounded on Friday and stock futures rose. Our interpretation is the data could have been worse but was largely inline with expectations and the uncertainty over whether the Fed will raise rates or not next week by a quarter point has largely been eliminated. The report suggests inflation made little progress toward the Fed’s goal last month amid ongoing pressures from the Iran war, tariffs and the data center buildout. Friday’s report showed the overall CPI was up 0.4% from the prior month and 3.4% from a year earlier – again these figures were inline with expectations. Energy prices rose 2.1% in August, while grocery prices were little changed and owners’ equivalent rent, the largest component of the CPI, advanced 0.2%.
Services prices excluding energy and rents rose 0.5%, boosted by a record increase in wireless telephone services, according to data compiled by Bloomberg. Hotel and motel rates and airline fares also posted strong advances. Goods prices, excluding food and energy commodities, edged up 0.1%, led by increases in prices for new and used vehicles. The report also contained signs of ongoing pressures from the data center buildout: Computer software and accessories prices rose a record 25.4% from a year earlier, while prices of computers, peripherals and smart home assistants advanced a near-record 8.4. Many Americans have been squeezed between rising prices and tepid pay gains. A separate report Friday that combines the inflation figures with recent wage data showed real average hourly earnings fell 0.3% in August from a year earlier, adding to a string of weak readings since the Iran war began. Central banks typically raise interest rates to increase borrowing costs, dampen demand and cool inflation. Fed officials have left rates steady at each of their last five meetings, though at the July gathering, three of them dissented in favor of a quarter-point rate hike.
A measure of producer price inflation showed renewed pressure from rising energy prices last month, potentially adding to the case for an interest-rate hike at the Federal Reserve’s meeting next week. The producer price index rose 0.4% in August from the prior month — the most since May — and 5.4% from a year earlier, according to the Bureau of Labor Statistics data out Thursday. Excluding food and energy, the gauge advanced 0.2% last month and 4.6% from a year ago. Some Fed officials have signaled the interest-rate decision at their Sept. 15-16 meeting may come down to what this week’s reports reveal. Fed Chairman Kevin Warsh, in a speech last month, said the US central bank has “work to do” if policymakers can’t be confident the underlying inflation trend is meaningfully improving. Thursday’s figures showed energy and transportation and warehousing costs surged in August following two months of declines, and ongoing hostilities between the US and Iran could further complicate the outlook. “With the PPI data overall still looking relatively hot, the Fed seems likely to hike this year even if it doesn’t pull the trigger this month,” Stephen Brown, the chief North America economist at Capital Economics, said in a note. The report showed prices for airfares and hospital inpatient and outpatient care posted strong advances in August, while a measure of legal services jumped 1.7% — the biggest increase in data going back to 2009. Those are among components in the report that are of particular interest to the Fed because they feed into its preferred inflation gauge, the personal consumption expenditures price index. The Bureau of Economic Analysis is scheduled to release August PCE price data, along with income and spending figures, on Sept. 30. Starting with that report, the BEA will make changes to how prices are measured for certain categories — including legal services, computer software and investment advice — that many economists expect will mean a lower PCE reading.
US mortgage rates climbed to a more than one-year high last week, extending a steady rise in borrowing costs since the start of the Iran war. The contract rate on a 30-year mortgage rose 6 basis points to 6.85% in the week ended Sept. 4, according to Mortgage Bankers Association data released Wednesday. The rate on a five-year adjustable mortgage, however, dropped to 6.13%. Prior to the start of the Iran war at the end of February, rates had fallen to the lowest level since 2022. Since then, they’ve moved up by about three quarters of a percentage point as the conflict pushed up energy prices and stoked inflation concerns. Higher borrowing costs have tamped down demand for loans. MBA’s refinance index, a measure of loan applications, fell 6.2% to its lowest level since May 2025. The MBA purchase index slipped 0.2% from the prior week. Federal Reserve officials are closely tracking inflation data as they weigh their next move on interest rates. The MBA survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75% of all retail residential mortgage applications in the US.
Sales of previously owned homes in the US slowed last month to their weakest pace in more than a year, as would-be buyers waited for relief on mortgage rates before purchasing. Contract closings slipped 2% to an annualized rate of 3.98 million in August, data released Thursday by the National Association of Realtors showed. Last month marked one of only two times since the fall of 2024 that sales have dipped below 4 million. The disappointing figures reflect a housing market in desperate need of a catalyst. Home price growth has cooled off from the pandemic era, when annual increases ran into the double digits, but affordability concerns remain a material headwind for buyers. The median sales price rose 1.6% from a year ago to $429,100, extending a streak of annual price increases dating back to mid-2023. Mortgage rates, now at their highest levels in more than a year, also provide a disincentive to move, especially for people who refinanced a few years ago at borrowing costs less than half that. Nationwide, less than a quarter of outstanding mortgages have rates above 6%, according to a recent housing report from Apollo Global Management. “Mortgage rates and home sales move in opposite directions, so it’s not surprising to see a mild dip in home buying activity due to high mortgage rates,” NAR Chief Economist Lawrence Yun said in a statement. Even so, buyers are “not falling apart” amid rising mortgage rates, Yun said on a call with reporters, noting that job and wage gains are helping to support demand. Yun suggested mortgage rates could soon touch 7%, however.
On the employment front, US private payrolls rose an average of 12,000 per week in the four-week period ending Aug. 22, according to a preliminary estimate from ADP Research and the Stanford Digital Economy Lab. ADP previously reported a monthly employment change of +38,000 for August. Jobless claims have remained rangebound throughout 2026, with the highest and lowest readings of the year both more moderate than in 2025. Economist forecasts show how firmly expectations are anchored around low claims: Even with the usual summer volatility, there’s a fairly strong consensus that claims remain low, and little expectation of a meaningful pickup in layoffs. Persistently low claims suggest employers are reluctant to shed workers. Initial jobless claims declined 1,000 to 206,000 in the week ended Sept. 5, slightly above the consensus 205,000. That was significantly below the 259,000 reading a year earlier. Continuing claims declined 1,000 to 1,774,000 in the week ended Aug. 29, staying persistently below the year-earlier level of 1,927,000. The bottom line is with claims persistently low, the Fed has little reason for concern about layoffs — allowing policymakers to stay focused on inflation.
Interest Rate Insight and the Fed
US stocks and Treasuries slid in Wednesday & Thursday trading in a market where inflation risks are the primary focus, with Brent crude topping $100 a barrel for the first time in a while and prompting traders to boost bets on higher global interest rates. Oil prices extended gains as the latest escalation in the Middle East resulted in US forces destroying five Iranian tankers carrying crude in response to two attempts to hit a US Navy warship with ballistic missiles. Tehran responded by firing missiles at Jordan and warning ships in the Persian Gulf. Treasuries fell across the curve, with the shorter end bearing the brunt. The two-year yield climbed to 4.56% by Thursday’s close, the highest since 2024. Additionally, in Europe bonds also saw a steep selloff. West Texas Intermediate on Thursday breached the psychologically important $100 per barrel level, adding additional pressure on bond prices.
Impactful International News
French industrial production fell unexpectedly in July, adding to warning signs for an economy already skirting recession. Output fell 0.4% because of persistent weakness across manufacturing in July, statistics agency Insee said. The median estimate of economists in a Bloomberg survey had pointed to an increase of 0.2%. The data gives an early indication of how France’s economy performed in the third quarter after coming close to a recession in the first half of the year, in part as heat waves crippled agricultural production. The weakness has added further complications to the minority government’s already strained plan to tackle a yawning budget deficit. On Friday, the finance ministry will update growth forecasts ahead of a debate on the 2027 finance bill. Insee’s report on industry showed no month-on-month growth of output since March. Manufacturing has been particularly weak in recent months with a 0.8% decline in July after a 1% drop in June. The number will add to a picture of weakness across the euro area at the start of the third quarter. In Germany, the region’s biggest economy, industrial production unexpectedly fell in July the most in almost a year.
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