US Economy: Weekly Commentary – September 15, 2025

US Market Review

U.S. Treasuries were mixed, with long bonds outperforming. Equities rose, led by the technology sector. The dollar softened, while oil, gold, and Bitcoin advanced.

U.S. Treasury bonds posted mixed performance over the week. Long-dated maturities significantly outperformed, while shorter maturities ended with higher yields. The 10-year/30-year Treasury yield curve has experienced more bear-steepening days in the past two years than at any other time in history.

Equity markets extended their rally. Micro- and small-cap stocks gained 1.65% and 0.25%, respectively, while large caps advanced 1.59%. The Magnificent 7 rose 2.80%, led by Tesla, which surged 11.50% on record Q3 deliveries and progress toward fully autonomous “robotaxis” without safety monitors, strengthening near-term demand prospects and reinforcing confidence in its long-term technology roadmap. The Tech sector was the week’s strongest performer, rising more than 3%.

In currency and commodities markets, the U.S. dollar weakened 0.10% against the euro. WTI crude oil climbed 1.02% despite concerns of global oversupply, following OPEC+’s announcement of higher output in October and signs of softer U.S. demand. Although geopolitical tensions in the Middle East and Ukraine pose potential supply risks, markets focused on rising inventories and China’s limited capacity to absorb additional volumes. Gold advanced 1.12%, reaching new highs, while Bitcoin gained 3.48%.

US Market Views Synopsis

US inflation remains elevated, driven by housing and services. Labour market weakness may ease pressures. Consumer sentiment declines amid tariffs, long-term inflation concerns, and political uncertainties.

US inflation remains elevated, with headline CPI up 0.4% MoM (2.9% YoY) and core CPI rising 0.3% MoM (3.1% YoY), both above the Federal Reserve’s 2% target. Supercore CPI, excluding housing, increased 0.22% MoM, driven by transportation services, while tariffs had a limited direct impact. Key contributors to price gains included airline fares, used cars, shelter, food, and energy, with shelter costs remaining particularly sticky. Core goods outside autos rose modestly, suggesting much of the tariff burden is currently absorbed by corporate margins. Moderating energy prices, slower rental growth, and a weakening labour market—evidenced by rising jobless claims, layoffs, and excess unemployed over vacancies—are expected to ease inflation, prompting the Fed to focus on labour market stability. Consumer sentiment edged down slightly in September, with lower- and middle-income households most affected, personal finances falling about 8%, persistent trade concerns, and rising long-term inflation expectations. Sustained inflation, trade tensions, and political uncertainties are likely to further erode consumer confidence.

Inflation

US inflation stayed hot with headline and core CPI above target. Supercore rose modestly. Tariffs had a limited impact. Housing drove gains. Weakening labour markets shift the Fed’s focus.

US inflation remains hotter than anticipated, with headline CPI rising 0.4% MoM (2.9% YoY) and core CPI up 0.3% MoM (3.1% YoY), both still above the pace consistent with the Federal Reserve’s 2% target. The Supercore CPI (services excluding housing) also advanced 0.22% MoM, leaving the annual rate at 3.52%, driven primarily by transportation services (+0.233%). While tariffs are likely to keep price pressures elevated in the coming months, they were not a significant factor in the latest data; instead, gains were led by airline fares (+5.9%), used cars (+1%), shelter (+0.4%), food (+0.5%), and energy (+0.7%). Offsetting these, recreation (-0.1%) and medical care (-0.2%) offered modest relief, while core goods ex autos, where tariff effects would typically emerge, rose only 0.1%. This indicates that much of the tariff burden is currently being absorbed by corporate margins, consistent with the sharp 1.7% decline in the PPI trade services measure, though such compression is unlikely to persist. Shelter inflation remains particularly sticky, with rent and broader housing costs posting their strongest monthly increases in several months, reaffirming housing as the primary driver of overall CPI. Looking ahead, however, softer energy prices, easing rental growth, and, most importantly, a weakening labour market are expected to exert downward pressure on inflation. Jobless claims are trending higher, layoffs are increasing, and the number of unemployed now exceeds job vacancies, leading to slower wage growth that should temper services inflation. Against this backdrop, the Fed is shifting its focus from inflation to labour market stability, and policy decisions through 2026 will likely weigh persistent but moderating price pressures against the risks of rising unemployment.

We anticipate higher inflation in the near term, with a potential rate cut by year-end driven by weakness in the labour market.

Consumer Sentiment

Consumer sentiment eased slightly in September. Finances and economic outlook declined. Tariff concerns persisted. Inflation expectations held steady short term but increased long term. Sentiment remains above lows recorded in spring 2025.

Consumer sentiment edged down by less than three index points in early September, with the decline in economic outlook most evident among lower- and middle-income households. Although assessments of buying conditions for durable goods improved, all other components of the index weakened, underscoring persistent concerns over vulnerabilities in business conditions, labour markets, and inflation. Perceptions of personal finances also deteriorated, with both current and expected measures falling by roughly 8% this month. Trade policy continues to weigh heavily on public attitudes, as about 60% of respondents volunteered comments on tariffs, a proportion largely unchanged from August; nevertheless, overall sentiment remains above the lows recorded in April and May 2025 following the announcement of reciprocal tariffs. Inflation expectations presented a mixed picture: the year-ahead measure held steady at 4.8%, while long-run expectations rose for a second consecutive month to 3.9%, still well below the 4.4% level observed in April.

We anticipate that sustained elevated inflation will progressively erode consumer sentiment, while ongoing trade issues and broader political challenges will further compound the deterioration.