PPI Plummets: New Data Fuels Expectations for Fed Rate Cut in September
Surprise Drop in Producer Price Index Bolsters Expectations for September Federal Reserve Rate Cut
By James Hyerczyk | Updated: September 10, 2025, 13:06 GMT
In a surprising turn, U.S. wholesale data for August shows the Producer Price Index (PPI) dropping. This drop makes many think that the Federal Reserve may cut rates in its next meeting.
Key Highlights:
• U.S. wholesale prices fell by 0.1% in August, while experts had predicted a 0.3% rise.
• Core PPI, which leaves out food and energy costs, also fell by 0.1% against a forecast of 0.3%.
• Equity and bond markets reacted well, as S&P 500 futures climbed and Treasury yields dropped.
• The 10-year Treasury yield slid to 4.068%, and the 2-year yield dropped 1 basis point to 3.529%.
• CME FedWatch now shows traders fully expecting a Fed rate cut in September.
Weaker Wholesale Inflation Supports a Soft Monetary Outlook
U.S. wholesale prices fell by 0.1% last month. The Bureau of Labor Statistics found that this drop did not match economists’ views of a steady rise. The core PPI’s drop shows that price pressures eased when food and energy are not counted. This fact made investors gain hope and push up equity futures, while bond prices did well as yields dropped.
A 0.2% decline in service prices, including a 1.7% drop in trade services, added to the change. Prices in machinery and vehicle wholesaling fell by 3.9%, which suggests prices in these sectors are easing. In contrast, prices for goods edged up a small 0.1%. Energy costs fell by 0.4%, while food prices ticked up 0.1%. Core goods prices, which leave out food and energy, rose by 0.3%. The numbers point to softer price movements in the goods market.
Tariff Effects and Labor Market Dynamics Under Scrutiny
Inflation stays above the Fed’s 2% goal. Fed leaders note softer rises in rents and wages as a sign that they can be patient. Tariffs set in the past still affect some goods; for example, tobacco prices grew by 2.3%. Recent labor data showed close to one million fewer new jobs in the year ending March 2025. Some worry about this drop even as Fed officials call the job figures “solid.” Such points add extra steps to the Fed’s choice on interest rates.
Implications for Upcoming Fed Policy and Market Outlook
This unexpected drop in the PPI makes many investors and analysts believe that the Fed will lower interest rates in September. Market watchers now wait for Thursday’s Consumer Price Index (CPI) report, which may back this view. If consumer inflation shows similar softness, it may push market views toward not just one, but perhaps more rate cuts in the near future.
Soft inflation and mixed signals from the labor market have made equities rise and Treasury yields fall. If current patterns hold, markets may get ready for a looser monetary policy that supports growth.
About the Author
James Hyerczyk is a U.S.-based technical analyst and educator. He brings over 40 years of experience in market analysis and trading. He studies chart patterns and price moves, has written two books, and has worked in both the futures and stock markets.
For more timely updates on market forecasts, economic news, and financial trends, visit FXEmpire.com.
Disclaimer: This article is for educational and informational purposes only and does not mean to serve as investment advice. Readers should check details and speak with a financial advisor before making any investment decisions.
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