Key Insights
- Inflation and labour market data are expected to affect expectations for Federal Reserve policy this week.
- The incoming PPI and CPI reports show ongoing inflation concerns tied to tariffs.
- Jobless claims and consumer sentiment are showing rising risks in the economy.
Macroeconomic data is now on everyone’s radar again, as the US prepares to release fresh Producer/Consumer Price Index, Initial Jobless Claims and the University of Michigan Consumer Sentiment Index this week.
Combined, these reports were expected to affect expectations for the Federal Reserve’s next move.
As of writing, the US central bank is facing a difficult balancing act. Inflation is sticky, but the labour market is showing signs of strain. How the Fed reacts to these could affect both traditional financial markets and cryptos.
Inflation Data With PPI and CPI in Focus
The Producer Price Index (PPI) is expected to come in at the middle of the week on Tuesday. This report is important because it offers a look at wholesale inflation. It basically measures changes in prices received by domestic producers.
This means that a rise in PPI shows cost pressures that later appear in consumer prices.
Economists expect a small increase for August, and tariffs on imports are likely to contribute to higher costs. A stronger-than-expected PPI would show a rise in inflationary pressure. This would add more concern to issues about persistent price growth in the economy.
The Consumer Price Index (CPI) is expected to come out the next day. This report tracks changes in prices paid by urban consumers for goods and services. The CPI is the most closely watched inflation measure for policymakers and markets, and is expected to be a big deal.
So far, analysts expect an uptick in August CPI. Rising core goods prices tied to tariffs are the main driver, and if CPI confirms stronger inflation, the Fed could face a tougher decision between easing its interest rates to support jobs and tightening them to contain prices.
Labour Market Signals Through Jobless Claims
Initial Jobless Claims, which will also be released on Thursday, are a window into the state of employment in the US.
This weekly report counts new applications for unemployment benefits. While the report can be volatile (and cause market volatility), the trend reveals the health of the labour market.
Recent jobs data showed the first net job losses since 2020. This was one of the issues that raised alarms about the weakening economy and caused strong volatility in the market last week.
This said, if jobless claims rise again, confidence in the labour market will drop further. That would move the Fed’s attention more toward supporting employment.
A weaker labour market tends to push the Fed toward cutting rates to stimulate growth. Conversely, stable or falling claims show resilience and reduce the pressure for immediate cuts.
Consumer Sentiment and Inflation Expectations
Friday will see the University of Michigan release its Consumer Sentiment Index. This survey measures how optimistic households feel about the economy. It also includes expectations for future inflation, which the Fed watches as well.
Analysts expect sentiment to weaken further in September. Consumers are under pressure from higher living costs. This means that a decline here would show that households are worried (and are therefore spending less).
TradFi & Crypto Under Pressure
Traditional finance markets will respond quickly to these releases. Higher-than-expected inflation in PPI and CPI would be negative for stocks and bonds.
This is because investors would assume the Fed needs to keep rates high, which slows growth and reduces profits.
At the same time, weak jobless claims data could provide some relief. If the labour market looks fragile, the Fed may cut rates sooner. That would lower borrowing costs and potentially lift stock prices.
Finally, the crypto market has become more tied to U.S. economic data. Bitcoin and other assets tend to move in line with stock indices when macroeconomic changes occur.
This said, inflation continues to be a double-edged sword for crypto. On one side, higher inflation sparks risk-off sentiment and reduces demand. On the other hand, Bitcoin is sometimes viewed as a hedge against currency debasement and could become attractive to some investors.
