US consumer inflation hits seven-month high, but Fed still expected to cut rates

US consumer prices climbed in August to their fastest pace since January, government data showed on Thursday (September 11), even as analysts believe the Federal Reserve will press ahead with an interest rate cut next week. The rise highlights growing cost-of-living pressures on households as President Donald Trump’s tariffs ripple through the economy, complicating the Fed’s goal of keeping prices stable.

The Labour Department reported that the consumer price index (CPI) rose 2.9% in August from a year earlier, up from 2.7% in July and in line with forecasts. On a monthly basis, prices increased 0.4%, doubling July’s pace. Core inflation—which excludes volatile food and energy costs—jumped 3.1% from last year, pointing to broader price pressures.

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Trump has reimposed a 10% tariff on most US trading partners since returning to the White House in January, while also levying steep duties on steel, autos, and other sectors. Economists warn the full effect on consumers will build gradually as companies restock at higher import prices. Despite the uptick, markets expect the Fed to cut interest rates at its September 16–17 meeting, likely by 25 basis points—the first reduction since last December.

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The IMF also flagged signs of cooling demand and slowing job creation, saying the Fed has room to start lowering borrowing costs to support the economy. Rising food, energy, and housing expenses are straining households, said Heather Long of Navy Federal Credit Union, warning that “the middle-class squeeze from tariffs is here.” She pointed out steep annual jumps in everyday goods: coffee up 21%, audio gear 12%, and furniture 10%—all tied to higher import costs.