Labor Day is in the rearview mirror, and the holiday season is fast approaching.
Next week, the Federal Reserve Board of Governors will meet to discuss how to handle interest rates. The big question is no longer whether the Fed will cut the federal funds rate, but rather by how much.
Given last week’s mixed August jobs report, which indicated a slowdown in hiring from weak net jobs growth and downward revisions to June and July jobs growth by 21,000 jobs, there is ample evidence for the Fed to cut interest rates. Jerome Powell signaled as much in Jackson Hole when he said that the Fed would likely cut rates from the current 4.25%-4.50% range.
This week, the federal government will release fresh data that could give the Fed reasons to make a greater cut to the fed-funds rate than analysts expect.
Here are 4 big economic factors to watch this week:
- Job Revisions—Is the economy generating as many jobs as reported? The annual revisions of job creation just found a woeful loss of nearly one million jobs last year. From March 2024 to March 2025, 911,000 fewer jobs were created than were originally reported. This is a sign that the economy shed significant numbers of jobs during the final Biden year. Update: -911,000 jobs
- Consumer Inflation—Are prices for household goods on an upswing, or will they fall?
The consumer price index (CPI), or inflation rate, rose 0.2% from June to July and 2.7% on an annual basis in July from the year prior. This is a slight acceleration in headline inflation, but there were significant price reductions in specific categories of goods such as gasoline prices and back-to-school items, as we wrote. Food prices are holding steady, hovering between 2% and 2.4%. So far, tariff-driven inflation has yet to trigger widespread price increases.
August CPI: TBD - Producer Inflation—Are prices that producers and sellers pay rising fast as they bear the weight of tariffs? The producer price index tracks prices of all output from U.S. producers and is considered a better measure of inflation than the CPI. The Producer Price Index rose 0.9% in July and 3.3% from July 2024 to July 2025.
August PPI: TBD - Small Business Sentiment—Are small business owners still optimistic about a strong U.S. economy this year? Last month, the Optimism Index rose 1.7 points in July to 100.3, slightly above the 52-year average of 98. Compiled by the National Federation of Independent Business, this index measures the health and confidence of U.S. small businesses. As I wrote last month, small businesses see more sunshine than clouds thanks to greater tax certainty from Hardworking Family Tax Cuts (i.e., the One Big, Beautiful Bill Act) and falling inflation concerns. The good news is that small business optimism is still rising.
August: Rose 0.5 points to 100.8 - Consumer Sentiment—How do consumers feel about the economy? The consumer sentiment index is compiled by the University of Michigan. In July consumers’ view of the economy fell -6% from the month prior and -14% from a year prior. Negatively, perceptions on many aspects of the economy fell, including whether now is a good time to buy big-ticket household items, current personal finances, and expectations of inflation rising. On the bright side, consumers expressed optimism over the Federal Reserve cutting interest rates and better personal finances in the future.
August: TBD
In addition, we learned yesterday that consumer credit borrowing surged in July. Consumer credit balances rose by $16 billion in July following a revised increase of $9.6 billion in June. This is the largest 3-month increase, and this pickup in borrowing coincides with stronger household spending in July. We continue to see bifurcated shoppers, those increasing their spending (and debt) to keep up with inflation on everyday needs, and those with much more discretionary income able to splurge on summer sales and new home furnishings.
What Does All of This Mean?
The economy is sending mixed signals of turbulence punctuated by bright spots. Americans worried that tariffs are driving prices higher, whether or not that is true. (Inflation is driven by too many dollars chasing too few goods, as we saw in 2021 and 2022.) Nonetheless, Americans are shopping. Spending and credit card debt were up this summer as the haves splurged while the have-nots are trying to tread water on prices.
Meanwhile, businesses are growing more optimistic from increased sales and better earnings. They are increasingly less worried about inflation, which should give us confidence that they don’t have to raise their own prices, nor do they worry about being able to stay in business.
Government policies matter, and while tariffs have driven fears of inflation, the tax cuts passed by conservatives are inspiring confidence and calm.
Given all of this, the Fed should cut interest rates significantly to provide borrowers more breathing room.