A couple of weeks ago, when the latest jobs report revealed a slump in hiring, the case for lower rates appeared all but closed. Then came the sharpest spike in US wholesale prices in three years – fuel for the concern about tariff-led inflation that’s kept Fed officials on hold so far this year.
While the recent inflation data has been volatile with some conflicting signals, Schwartz says there’s a market perception that the inflation surge from 2022 is behind us.
“While we expect some near-term volatility, we believe markets will continue to move past the inflation situation, and that the economy and the US consumer are strong enough to continue growing,” he said.
At Bank of America Corp., strategists including Mark Cabana and Meghan Swiber say they don’t think Powell will sound as dovish as the market expects.
“Powell’s reaction function to recent stagflationary data will be key,” they noted. “Will he be spooked by jobs revisions or lean into the labor supply slowdown?
In an interview with Bloomberg Television, Fed Governor Michelle Bowman deflected when asked if she would be interested in leading the central bank as chair.
Meantime, S&P Global Ratings said revenues from tariffs will help soften the blow to the US’s fiscal health from the tax cuts, enabling it to maintain its current credit grade. S&P affirmed its AA+ rating for the US — a score it’s given since 2011.
Tariff revenue reached a fresh monthly record in July, with customs duties climbing to $28 billion.
On the geopolitical front, President Donald Trump urged Russia’s Vladimir Putin and Ukraine’s Volodymyr Zelenskiy to show some “flexibility” as the US president accelerates his efforts to end the war in Ukraine and encourages the two leaders to hold a bilateral summit.
“While there’s a sense that the path to peace is at least slightly clearer, traders remain wary,” said Fawad Razaqzada at City Index and Forex.com. “And rightly so – the toughest conversations, namely over territory, still lie ahead.”
