US producer prices unexpectedly fell in August, offering policymakers some breathing room as they weigh how aggressively to ease policy in response to slowing jobs momentum. The decline, the first in four months, has intensified speculation about the Federal Reserve’s September decision, with markets now openly debating whether Chair Jerome Powell will deliver a 25 or 50 basis point cut next week.
Inflation Picture Shifts
Core producer prices, excluding food and energy, slipped 0.1% last month, defying expectations for an increase. July’s data was also revised lower, signaling that pricing pressures may be softer than feared. For doves within the FOMC, the numbers strengthen the case for deeper easing, while hawks point to still low unemployment, loose financial conditions, and tariff-driven price risks as reasons to proceed cautiously.
The ultimate verdict, however, will rest on Thursday’s consumer price index. Consensus calls for another 0.3% monthly rise in core CPI. A softer reading could tip the balance toward a more aggressive cut, while an in line or stronger figure would likely reinforce the base case of a quarter point reduction, with additional cuts stretched into early 2026.
Global Central Banks and Politics
Attention also turns to Europe, where the ECB is expected to hold rates steady, opting to assess incoming data before shifting its policy stance. Meanwhile, geopolitics remain a key undercurrent: President Donald Trump and India’s Prime Minister Narendra Modi agreed to reopen trade talks, a potential de-escalation after weeks of tariff battles and tensions over Russian oil.
Commodities and Market Reaction
Gold edged slightly lower after a recent run up, while oil prices softened following three straight days of gains as traders evaluated the latest geopolitical risks. Markets remain wary that further moves by Washington to pressure Moscow could disrupt global crude flows.
SARACEN MARKETS VIEW
The PPI surprise effectively cleared the runway for Fed easing the only question now is the scale. Traders should treat today’s CPI release as the defining catalyst, a soft print reopens the door to 50 bps, while anything firmer locks the Fed into 25 bps. Beyond rates, geopolitical headlines continue to inject volatility into energy and precious metals. For execution, this week is not about “if” the Fed cuts but “how much” and how fast.
Disclaimer: This report is for informational purposes only. It does not constitute investment advice or represent the official views of any central bank or regulatory body.