This week’s CPI report showed inflation may be starting to bite consumers. Prices on apparel, household furnishings and recreation commodities unexpectedly increased in June. Prices for audio-video equipment rose 1.1% and are up over 11% YoY, the largest annual increase in a category where prices traditionally go down due to improvements in technology. Boston Fed President Susan Collins warned that she expects import taxes to push up inflation while restricting growth, ostensibly leading to a nightmare stagflation scenario. It is expected that June’s CPI report will leave the CORE PCE, the FOMC’s preferred inflation measure, well-above the committee’s 2% target. This paves the way for the committee to hold rates steady at their July 30 meeting. Interest rate futures have a 4% probability for a cut at that meeting. 

Equity markets spent the week hitting a series of new all-time highs on several indices. This means traders aren’t quite as worried about the August 1 tariff deadline as previously thought. Sadly, U.S. stocks attracted less than 50% of new inflows, down from 72% a year ago. A possible indication that traders are wary of U.S.-based assets in general, not just government debt. Crypto assets also hit a $4 trillion combined valuation for the first time ever. 

FOMC Chair Jerome Powell spent another week in the headlines amid scrutiny over the renovation of the Fed headquarters in Washington, D.C. and continued pressure from President Trump to cut rates. Treasury Secretary Scott Bessent took time out of an interview to assure markets that Trump would not fire Powell, but a formal process to find his replacement has begun. Powell’s term as chair ends in May 2026, though he has the option to remain on the Board as a voting member until January 2028. However, it is widely expected that he will resign at the conclusion of his term.

KEY INDICATORS THIS WEEK

Jobs – The FOMC Beige Book designated the labor market outlook as “neutral to slightly pessimistic,” as tariffs put upward pressure on prices. Fed Governor Christopher Waller commented that most recent job growth has occurred in the public sector. This means the private sector probably isn’t doing as well as we think, despite another week of strong labor data. 

Next Week – Nothing to move markets, Fed surveys, housing data and the usual jobless claims.