US inflation rose to 2.9% in August, up from 2.7% in July, while core inflation held steady at 3.1%, indicating that underlying price pressures remain stubborn. At the same time, initial jobless claims climbed to 263,000, the highest since 2021, signalling potential cracks in the labour market. This presents a dilemma for the Federal Reserve ahead of next week's interest rate decision: inflation is higher than target, but employment is signalling a slowdown. While markets still expect a 0.25 percentage point rate cut, the uptick in inflation could prompt caution from policymakers, especially if tariffs are beginning to exert upward pressure on prices. Political pressure from Donald Trump to cut rates adds another layer of complexity. Bond markets reacted modestly, with the two-year Treasury yield dropping briefly to 3.49% before partially recovering, suggesting investors remain confident of a near-term cut but see a slower pace of easing beyond September.