The central bank will meet again next week and investors are looking for another quarter-point rate cut as the central bank continues to battle various headwinds from a slowing global economy to the fallout from President Donald Trump’s trade war.
The Fed has also cited low inflation as a reason to be cutting rates at the moment with overall prices still falling below the Fed’s target for consumer prices to be rising annually by 2%. However, some economists, noting the bigger gains in core prices, have expressed concerns that inflation pressures could suddenly reappear given extremely low unemployment.
In a separate report, the government said that new applications for unemployment benefits, a proxy for layoffs, dropped by 15,000 last week to 204,000, the lowest level in nearly five months and further evidence that the labor market remains strong. The government reported last week that the unemployment rate stood at 3.7% in August, the third month it has been at this half-century low.
The inflation report showed that energy prices dropped 1.9% in August and now are 4.4% below the level of a year ago. Gasoline costs fell 3.5% last month after rising by 2.5% in July.
Food costs were unchanged for the third straight month and up a small 1.7% from a year ago.
Clothing costs, which had posted a big jump in June, edged up a small 0.2% in August.