Inflation Held Steady in August, Pushing the Fed Towards a Rate Hike

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Alex Ossola (0:34)

The latest data show inflation stayed high last month, putting pressure on the Fed to raise interest rates next week. Plus, 25 years after the September 11th terrorist attacks, many of the security measures established in its aftermath are still with us.

Alison Sider (0:48)

They really wanted to standardize security at airports, make it a government function.

Alex Ossola (0:54)

And Anthropic says Iran used its AI to target American forces. It's Friday, September 11th. I'm Alex Ossola for the Wall Street Journal. This is the PM Edition of What's News, the top headlines and business stories that moved the world today.

A new report out from the Labor Department today showed that the inflation rate held steady at 3.4% in August. That was in line with analyst expectations, but is higher than the Fed's 2% target, which is likely to have big implications for the Central Bank's meeting next week. WSJ Economics reporter Justin Lahart is here with more on the numbers. Justin, overall inflation was at 2.4% at the start of the year, and it was expected to cool.

Why didn't that happen? What is keeping inflation so high?

Justin Lahart (1:45)

Well, I mean, the biggest thing is just energy prices. With the war in Iran, we've seen gasoline prices shoot up. If you drove down the highway today, you would see diesel prices above six bucks, which is a new record. There may still be some lagged effects from tariffs. And then also the AI build out is pushing prices higher for some goods, with particular things that have like DRAM memory. You know, we saw this week that Apple came out with their new phone that's going to cost $1,999.

And we know that that price was boosted by these memory costs. You know, it's not what the Fed wanted to see this year.

Alex Ossola (2:22)

I have to think that this reading puts pressure on the Fed to raise rates next week. How certain are investors and analysts that this is going to happen?

Justin Lahart (2:30)

They're pretty certain at this point. Something could happen over the weekend, I suppose. But it could be concerning if they didn't raise rates. People will be wondering what happens if inflation stays elevated. It's very hard to raise rates at the October meeting since it comes right before the midterm elections. Waiting around until December, you know, then maybe having a worse inflation situation. That is not a good look for the Fed, especially at a time when there's concerns that the Fed is being politicized. They really want to show their independence.

And frankly, most people think they should like.

Alex Ossola (3:08)

So if there's little question about the next meeting, is the question then for investors, what about future meetings?

Justin Lahart (3:14)

Yeah, a lot of it comes down to that. What is going to happen with energy prices in particular? Are we going to see any sort of cooling of what's going on in the Middle East? Are we going to see any sort of decline in energy prices? A lot of times, economists, Federal Reserve officials like to sort of look through energy prices because they're only temporary. They're affected on inflation ultimately.

But in this case, if people start to expect higher inflation, that could be self-fulfilling. You can end up with a bigger inflation problem than you would have had otherwise. All of this sort of comes into the Fed's thinking.

Alex Ossola (3:51)

That was WSJ economics reporter Justin Lahart. Thank you, Justin.

Justin Lahart (3:55)

All right, thank you.

Alex Ossola (3:56)

US indexes rallied today, adding nearly 1%, a signal that investors liked the idea of a rate hike tamping down inflation. Brent crude futures were volatile after Saudi Arabia shut down a crucial pipeline that allowed the kingdom to continue exporting crude oil after Iran closed the Strait of Hormuz, saying it had been attacked multiple times as fighting across the Middle East flared. Brent crude futures ultimately settled just shy of $105.

Anthropic says Iran used its AI models to target US Navy ships in the Middle East. A report from the AI company found an Iranian linked group compiled information from transponders and satellite photos to track American warships and look for vulnerabilities. Anthropic said it disrupted the plot. The finding was one of several threats outlined in the report that offered up a playbook of how US adversaries are using AI in new ways that pose serious threats to national security, including creating new missiles and aggressive disinformation campaigns, spying on dissidents, and trying to develop biological weapons. And Maine Republican Senator Susan Collins criticized President Trump's trade dispute with Canada. She's working closely with Trump administration officials to try to lessen the impact of the tariff fight, but in an exclusive interview with the Wall Street Journal, she said that President Trump's tone and rhetoric have been inappropriate and unhelpful. The White House didn't immediately comment. The trade war has an outsized impact in Maine, which counts Canada as its top trading partner, and complicates Collins' bid for re-election, her toughest in her nearly 30-year career.