US CPI to show return to Fed target as sizeable miss needed to trigger 50 bp rate cut

Last week’s rich trove of labour market data did not resolve the question of whether the Federal Reserve should go for a standard, or a jumbo 50bp cut at its September meeting.

Worker demands for higher salaries and the pace of job creation have undoubtedly weakened, notably the low unemployment rate which was actually down from July, and the drop in weekly jobless claims indicate that there is little systematic job destruction such as one would expect in the lead up to a recession.

This week's CPI numbers are expected to continue to show that inflation has returned de facto to the Fed target level of around 2%.

With futures now only assigning around a 1-in-4 chance of a 50bp cut from the Federal Reserve this month, a sizable miss will probably be needed in order to encourage Powell and co. to go big this month.

The frequent labour and demand data between now and the meeting may also be key in tipping the balance in either direction.