- US manufacturing growth slowed in August with PMI at 54.6, below forecasts
- ISM prices paid index stayed high at 71.1, signaling persistent cost pressures
- Fed Governor Barr may support rate hikes if inflation fails to moderate
US manufacturing growth slowed in August, but stubborn cost pressures are keeping the Federal Reserve focused on inflation. The latest factory data comes as Fed officials signal they could support higher interest rates if price pressures fail to ease.
The Institute for Supply Management's manufacturing PMI fell to 54.6 in August from 55.6 in July. The reading remained above 50, showing continued expansion, but it missed economists' forecast of 55.2.
The bigger concern for policymakers came from supply chains and input costs. The ISM's prices paid index stayed at 71.1, while the supplier deliveries index rose to 59.3 from 58.9. Higher readings on the latter indicate slower deliveries.
These pressures could keep inflation elevated even as factory growth loses some pace.
Barr Signals Support For Rate Hike
Federal Reserve Governor Michael Barr added to the hawkish tone on Tuesday, saying he could support a rate increase if inflation does not moderate enough.
According to CNBC, Barr said broader price pressures could become entrenched and stressed that inflation has remained above the Fed's 2% target for nearly five and a half years.
He said the central bank could take more time if data showed inflation moving toward 2%. However, if that progress remains insufficient, he said policymakers should act decisively by raising rates.
Barr supported the Fed's July decision to keep the federal funds rate target at 3.5% to 3.75%.
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Warsh Adds To Rate Hike Pressure
Fed Chairman Kevin Warsh also struck a firm tone last week. His recent comments were widely seen as opening the door to a rate hike as soon as the Fed's next meeting.
Markets are now closely watching the September 15 to 16 policy meeting. CME Group's FedWatch tool showed about a 66% probability of a rate increase on Tuesday morning.
The bond market is also reflecting growing concern. The benchmark 10-year US Treasury yield climbed to its highest level since mid-January 2025 amid renewed worries around the Middle East.
Inflation Still Above Fed Target
The latest inflation data gives the Fed another reason to remain cautious. Consumer prices were up 3.7% year-on-year in July, while the reading excluding food and energy stood at 3.3%.
The central bank will receive fresh consumer and producer price data next week before its September meeting.
For now, the US economy is showing mixed signals. Consumer spending remains resilient and factories are still expanding. But high input costs and supply delays could keep inflation sticky.
That leaves the Warsh-led Fed facing a difficult choice: give the economy more time or raise rates to prevent inflation from becoming even harder to control.
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