Hot PPI Print Roils Markets as Fed Signals Shift on Jobs and Rates

By Matt Brienen

Published: 2025-08-14T17:16:22+00:00

The Producer Price Index (PPI) came in significantly hotter than expected, with both headline and core inflation rising 0.9% in July versus a 0.2% forecast. The increase appears to reflect tariffs finally flowing through the supply chain, though pairing this data with CPI suggests much of the added cost is still being absorbed. Year-over-year figures showed headline inflation climbing from 2.4% to 3.3%, and core inflation rising from 2.6% to 3.7%, both topping market estimates and putting pressure on the bond market—though bonds held up better than anticipated.

Despite the alarming inflation read, markets are still pricing in a near-certain rate cut in September. This comes even as Fed commentary begins to take a more hawkish turn. Chicago Fed President Austan Goolsbee, previously dovish, appeared on CNBC saying the labor market remains strong. His comments followed a dismal July Jobs Report, with just 73,000 jobs created and downward revisions to May and June. While the unemployment rate only ticked up slightly from 4.1% to 4.2%, it masks deeper weakness: the household survey revealed 260,000 job losses in July, and a combined 863,000 over the last three months. Goolsbee’s focus on the unemployment rate as a sign of strength appears to ignore these structural labor market shifts.

Notably, Goolsbee’s comments reflect a major pivot. As recently as June 24, he supported a July rate cut if inflation stayed contained. On March 21, he dismissed tariffs as a “one-time increase.” By November, he still saw Fed policy as too restrictive with a neutral rate at 2.9%.

San Francisco Fed President Mary Daly also weighed in, softening her tone by acknowledging that a 50bp cut in September may not be warranted, but reiterating support for a 25bp cut.

Adding to the mixed signals, the BLS reported Initial Jobless Claims fell by 3,000 to 224,000, while Continuing Claims dipped to 1.953 million—still historically elevated, marking the 12th straight week above 1.9M. The labor market continues to show signs of employers clinging to workers, but once layoffs happen, rehiring appears increasingly slow.

With inflation running hot and the labor market showing cracks, the Fed’s messaging remains conflicted. Yet, markets are betting nearly 100% on a rate cut in September—setting the stage for a pivotal month ahead.