Futures markets are also expecting a rate cut. Investors peg the chances of a quarter-point interest rate cut at nearly 96%, according to the CME FedWatch Tool, a measure of market sentiment.

Goldman Sachs economists in a note estimated that consumers could soon bear up to 67% of tariff costs, up from 22%, thus escalating broader inflation risk. Before the Aug. 14 PPI report, markets were nearly unanimous in pricing a September Fed interest rate cut of up to 0.50%.

A Federal Reserve interest rate cut in September, the first this year, followed perhaps by another before year-end remains the base forecast for most economists polled by Reuters amid rising concerns about the health of the world's biggest economy.