US Inflation Paves way for Fed Cut

• US CPI came in broadly as expected, giving the Fed a clearer path to cut rates at next week’s meeting and reinforcing expectations that the easing cycle is set to resume.
• That case was underpinned by weekly jobless claims, which jumped to 263k from 236k and well above the 235k forecast, pointing to further cracks in the labour market.
• Inflation details were steady: headline CPI rose 0.4% in August (0.3% expected) and 2.9% yr, while core CPI increased 0.3% mth and 2.9% yr. Tariff effects are adding to goods prices, but the pass-through remains gradual.
• Treasuries reacted modestly. The 10yr briefly dipped to 3.99% before closing near 4.02%, around 2bp lower, with the move reflecting both the inflation print and softer labour data.
• Fed pricing was little changed, with ~27bp of cuts still implied for next week and ~72bp by year end. Attention now turns to whether the Fed signals scope for larger moves should the data continue to soften.