U.S. consumer inflation accelerated to 2.9% in August, its highest level since January, compared to 2.7% in July. Rising food and energy prices drove the increase. At the same time, unemployment rose as jobless claims jumped by 27,000 to 263,000 — the highest since October 2021.
The dual challenge of higher inflation and rising unemployment has complicated the Federal Reserve’s decision-making. While inflation remains above the Fed’s 2% target, growing joblessness raises recession risks, typically warranting a rate cut. Markets, however, believe political pressure from President Donald Trump could push the Fed toward a rate cut in its September meeting.
The Dow Jones Industrial Average surged over 500 points on Thursday, while futures rallied by more than 600 points on hopes of monetary easing.
The European Central Bank kept its key interest rate unchanged at 2% in its latest meeting, despite stable inflation near its target. Policymakers cited ongoing uncertainties, including political turmoil in France and continued geopolitical tensions with Russia.
Growth forecasts for the eurozone were adjusted, with 2024 estimates raised to 1.2% but 2025 projections trimmed to 1%. Inflation forecasts for 2025 and 2026 were revised slightly higher.