All Eyes on the Fed:

Inflation's still sticky, jobs are wobbling, but the Fed's next move should make The Donald happy.

Markets were given plenty to chew on last night with the latest batch of US data - and the reaction was as mixed as you'd expect when inflation is still running hot, but the jobs market looks increasingly fragile.

Headline CPI rose 2.9% year-on-year in August, with core inflation (stripping out food and energy) at 3.1%. That's down from earlier in the year, but still well above the Fed's 2% comfort zone. The message? Inflation isn't beaten yet.

On the other side of the ledger, the labour market is flashing warning signs. Weekly jobless claims jumped to 263,000, the highest in almost four years, and previous payroll numbers have been revised down. Taken together, the picture is of an economy where price pressures remain sticky, but the jobs engine is beginning to sputter.

For the Federal Reserve, which meets again on 17 September, it's an uncomfortable balancing act. Their dual mandate - stable prices and maximum employment - is being tugged in different directions. Inflation argues for caution. The jobs data suggests the Fed may need to move sooner rather than later to ease financial conditions.

Markets, unsurprisingly, are betting the Fed will cut. A Reuters survey of economists puts the chance of a 25 basis point reduction at the next meeting as a near-certainty, with more to follow before year-end. Futures markets are broadly aligned, reflecting growing confidence that Jerome Powell and his colleagues will err on the side of supporting employment, even if inflation hasn't quite settled back to target.

But don't bank on a straight line of cuts. The Fed has been stung before by easing too soon, only to see inflation flare up again. With oil prices creeping higher and service inflation stubborn, there's little appetite in Washington for a repeat. Expect plenty of "data-dependent" caveats in Powell's press conference, even if the widely-expected cut is delivered.

For investors, the message is twofold. First, rate cuts may be back on the table, but they're unlikely to come in a rush. Second, the shifting balance between inflation and employment means volatility is likely to remain elevated. Bonds have already rallied on the jobs news, while equities are oscillating between relief that cuts are coming, and concern that inflation is persistent and possibly rising further, while the underlying economy is losing steam.

All in all, the September Fed meeting is shaping up as one of the most closely watched in recent memory. A cut looks more likely than not - but whether it's the start of a cycle, or a cautious one-off, remains very much an open question.

If there is a cut, it will be welcome news for The Donald, who, outside of being able to impose tariffs at will, hasn't had much luck influencing the Fed as he'd like to. All up, he's had a tough week with his mate Putin launching drones into Poland, (a US ally and NATO member), Netanyahu attacking Qatar, (home of America's largest air base in the Middle East), and high-profile MAGA supporter Charlie Kirk being assassinated at home.

So a cut next week while he's on a visit to the UK for a two-day stay with King Charles at Windsor Castle should cheer him up a bit. Meanwhile, his ambitions for a Nobel Peace Prize are not looking too good.