Monthly Economic Insights
Rate cuts, sticky inflation, and shifting consumer priorities are still a mixed bag of risk and opportunity
Although headwinds persist with inflation, job market softness, and trade policy uncertainty, the latest U.S. economic data reveal a landscape of tentative easing and cautious optimism. Businesses and consumers are pulling in the reins, but investors continue to buy the equities and bonds that finance them, providing continued strength in capital markets.
Consumer prices rose 2.9% year-over-year in August, slightly higher than July’s 2.7%. Core inflation, which excludes food and energy, remains marginally higher at 3.1%. Shelter, energy, and food away from home are among the key categories keeping inflation elevated. Price pressures remain higher, and while they’ve cooled, they’re still above the Federal Reserve’s 2% target.
In response, the Fed made its first move of 2025 by cutting its benchmark rate by 25 basis points in September, lowering the range to 4.00%–4.25%. It was the first cut since December 2024 and came after months of signaling caution.
Chairman Jerome Powell has left the door open to additional cuts later this year, with markets expecting two more by the end of the year. The rationale is clear: inflation isn’t falling as quickly as hoped, but cracks in the labor market are widening, and the Fed is adjusting.
Those cracks are increasingly visible in the jobs report. In August, the U.S. economy added just 22,000 jobs, well below expectations and continuing a trend of slower hiring through the summer.
Unemployment ticked up to 4.3%, compared to 4.2% in July, with gains concentrated in healthcare and government, while cyclical sectors such as manufacturing and retail showed signs of softness. Labor market momentum has clearly slowed, and business leaders should expect hiring conditions to become more cautious.
Markets, on the other hand, have embraced the shift in Fed policy. Stocks rallied sharply after the September rate cut, with technology names leading the way. The S&P 500 has surged roughly 30% from its April lows through late summer, and small-caps have participated as well. Still, valuations are ambitious, and investors are keenly aware that inflation and jobs data could shift sentiment quickly.
Bottom Line: It appears that the U.S. economy is in an ongoing state of soft landing. Consumers are signaling they will keep spending, but they want value and affordability. In this environment, performance will likely hinge on fundamentals: controlling expenses, maintaining access to capital, and delivering products and services that align closely with what customers value most.
— Marcus Scott, CFA, CFP®, Chief Investment Officer (CIO) for Country Club Trust Company
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