US inflation rose to 2.9% in August 2025 as jobless claims hit a four-year high, raising concerns over the Fed’s next interest rate decision.
Washington, September 11, 2025 – US inflation accelerated in August while jobless claims surged to their highest level in nearly four years, painting a troubling picture of the American economy at a time when the Federal Reserve is under pressure to balance price stability with slowing job growth.
According to fresh data from the Bureau of Labor Statistics (BLS), the Consumer Price Index (CPI) rose 0.4% month-over-month and climbed to 2.9% year-over-year, up from 2.7% in July. That marks the highest annual inflation rate since January 2025. Core CPI, which excludes food and energy, held steady at 3.1% annually but advanced 0.3% compared to July.
The US inflation spike was driven largely by shelter costs, which make up a third of CPI, along with higher food prices and surging airline fares. Gasoline prices also rose 1.9%, reflecting persistent supply constraints. These increases outweighed declines in used vehicle prices and some apparel categories.
Economists point to tariffs and global supply chain disruptions as major contributors. “Tariffs are essentially a tax on consumers and businesses, and we’re seeing those costs filter through to everyday prices,” said Dr. Elena Ramirez, chief economist at the Economic Policy Institute.
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Labor Market Weakens
Adding to economic concerns, the Department of Labor reported that initial jobless claims climbed to 263,000 for the week ending September 6, up 27,000 from the prior week and the highest since October 2021. Continuing claims also rose, indicating laid-off workers are struggling to find new employment.
The increase was broad-based: factory-heavy states like Michigan and Ohio reported layoffs amid slowing exports, while service sectors such as retail and hospitality also saw higher job losses. The unemployment rate stood at 4.3% in August, the highest in four years.
“This is a clear sign the labor market is softening faster than expected,” said Mark Zandi, chief economist at Moody’s Analytics. “With inflation sticky and unemployment rising, the Fed faces its toughest balancing act in years.”
Market Reaction and Fed’s Dilemma
Financial markets reflected the tension. Stock futures fell, bond yields edged up, and the dollar strengthened. Investors are now split on the Fed’s next move. While many expect a 25-basis-point rate cut at next week’s Federal Open Market Committee (FOMC) meeting, the hotter inflation print may complicate those expectations.
“The market is caught in a tug-of-war,” said Sarah Chen, senior strategist at JPMorgan Chase. “Hotter inflation tempers rate-cut bets, but weakening jobs data argues for easing. The Fed’s September meeting will be pivotal.”
Fed Chair Jerome Powell has repeatedly emphasized a “data-dependent” approach, acknowledging that while inflation is down from its 2022 peak above 9%, progress has slowed.
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Political and Economic Stakes
The data carries significant political weight as the 2026 midterm elections approach. The Biden-Harris administration has highlighted job creation since 2021, but rising unemployment and stubborn inflation could become major flashpoints. Republicans, meanwhile, blame “reckless spending and anti-business policies” for the economic turbulence.
Treasury Secretary Janet Yellen dismissed immediate recession fears, citing strong consumer spending and infrastructure investments. However, economists warn that persistent inflation combined with weakening labor conditions could push the economy closer to a downturn.
The Road Ahead
Upcoming reports—including the Producer Price Index (PPI) and retail sales data—will further shape the outlook. For now, the dual warning signs of accelerating inflation and weakening employment underscore the challenges of achieving a “soft landing.”
As Powell noted at Jackson Hole last month: “Persistent inflation alongside labor market risks requires careful calibration.”