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Inflation

Neal Freyman

brewmarkets.com

Investors ramped up their bets on Fed Chair Jerome Powell lowering interest rates in September after inflation came in mostly in line with expectations last month.

According to July’s Consumer Price Index report, released this morning, US consumer prices 

 and 0.2% from the previous month. That year-over-year growth was the same inflation rate as in June and a hair below expectations of a 2.8% increase. Core CPI,

which strips out food and energy, rose 3.1%, a tad above projections of 3%.

Economists have warned that President Trump’s tariffs would force businesses to pass on their added costs to consumers, driving inflation higher. But so far this summer, we’ve seen a mild, if any, 

 in losses from tariffs, but they haven’t raised prices en masse to make up for it. Some industry experts predict price hikes will come alongside the new model year this fall.

was up just 0.1% on the month (its smallest increase since May). 

rose 0.5%. So, it’s hard to draw any major conclusions from these tariff-susceptible items.

So what did drive inflation last month? Not goods but 

, which (excluding energy) jumped 0.4%, the most since the start of the year.

, aka housing, was the main contributor to the headline CPI number, rising 0.2% in July.

gained 4%, their biggest monthly increase in over three years.

Jerome Powell’s been waiting for it, that green light, he wants it…and it might have just arrived. The Federal Reserve has kept rates steady this summer over concerns that a rate cut + tariffs combo would push inflation higher.

But after today’s CPI report showed those tariff-related price increases to be subdued (for now), investors increasingly believe Powell will feel comfortable enough to lower interest rates at the Fed’s next meeting in September…especially with the labor market slowing down considerably. Traders are now pricing in more than a 90% chance the Fed cuts rates by a quarter percentage point at the conclusion of its meeting on September 17.

What happens after September is up in the air, since economists still expect tariffs to ultimately push prices higher as companies run out of existing inventory and protect their margins. According to Seema Shah, Chief Global Strategist at Principal Asset Management, “Markets like today’s inflation print as it means the Fed can lower rates unheeded next month—rate cut decisions in October, December and beyond may well be more complicated.”—

Fed rate cut looks like a go after mild inflation report

So far this summer, we’ve seen a mild, if any, impact on prices for goods vulnerable to tariffs.

Rate cut looks like a go after mild inflation report

Lucy Brewster

Do you want the bad news or…the other bad news first?

 for now, our old pesky friend inflation 

 hasn’t gotten the hint that the party is over.

The Fed’s preferred inflation gauge, released this morning, 

 from January, the biggest jump in a year and more than expected.

Core inflation, which excludes volatile food and energy prices, was up 2.8% year over year in February, higher than the 2.7% analysts expected and above the 2.6% reading in January.

Meanwhile, inflation-adjusted consumer spending only rose 0.1% last month as Americans cut back on spending on services, such as dining out and staying at hotels.

 US households are still putting money away: Inflation-adjusted disposable income climbed 0.5% in February, and the savings rate rose 4.6% for the month, the highest rate since last summer.

And remember, this is all before President Trump’s 

 on everything from car parts to cocktails.

Fed Chair Jerome Powell’s tricky soft landing attempt seems to be getting more turbulent with every new economic data point that comes in.

Here’s the central bank’s central challenge:

 Inflation is already sticky, and will likely be pushed higher by Trump’s tariffs. But at the same time, the labor market is cooling, consumer sentiment is 

, and Americans are seeing recession indicators everywhere from 

Today’s inflation and spending numbers support the Fed’s uncomfortable “wait and see” approach to lowering interest rates, though investors are still 

Here’s EY Senior Economist Lydia Boussour on the possible path for rate cuts: “We continue to anticipate two 25 basis point (bps) rate cuts in 2025, in June and December. However, a reactionary monetary policy stance means policy direction could rapidly turn more dovish on weaker economic and labor market data, just like it could turn hawkish with hotter inflation and inflation expectations readings.”

Inflation hot, spending note

The Fed's soft landing attempt is hitting more turbulence. 

Inflation hot, spending not

Like eagle-eyed Swifties awaiting the release of 

 or football fans agonizing over whether their team will reach the Super Bowl, investors have been anticipating how much the Federal Reserve will slash rates by (yes, we’re lame).

And today, we got the answer. In its first cut in over four years, the Fed cut interest rates by 50 basis points, surprising the swath of economists who predicted a more standard 25 basis point cut—and markets celebrated.

Back during the peak of the Covid-19 pandemic, the Fed kept interest rates near zero to stimulate the economy. But as inflation spiraled out of control, the Fed aggressively 

 for 11 consecutive meetings over the course of 2022 and 2023. Then, once again, the seesaw 

 as the labor market slowed and consumers tightened their belts, slowing economic growth.

Now, the central bank is going for a soft landing, in which the economy is stimulated by lower rates while not slowing enough to send it into a recession. Lower rates means companies should be able to spend more, buying homes will be more affordable, and 

 reserves into risk-on assets like equities.

During his press conference, Fed Chair Jerome Powell reiterated that the central bank will be making its monetary decisions meeting-by-meeting and rely on macro data. But while the Fed went big today, Powell warned that “no one should look at this and say this is the new pace.”

The Fed’s updated dot plot now calls for a target range of 4.25% to 4.5% by the end of this year, with policymakers’ median projection 4.4%. That means another 50 basis points worth of cuts this year, which will likely be split into 

. The median projected Fed Funds Rate by the end of 2025 is now 3.4%, which would indicate another 100 basis points worth of cuts next year, with the Fed Funds Rate eventually reaching a long-run neutral rate of 2.9% in 2026. However, Powell could easily change course, as the Fed has done many times in the past.

“After pushing the envelope with a double-sized rate cut, investors should expect a rather regimented easing process going forward that sees rates come down closer to neutral over time,” explained Chief of Investment Strategy at Glenmede Jason Pride in a note today.—

Jerome Powell just announced the first rate cut in 4 years

The Federal Reserve just cut interest rates. Here's what happens next.

The first cut is the deepest 

If history is any indication, the Federal Reserve’s imminent rate cut could provide an electric jolt to the already high-flying S&P 500 over the next year.

Federal Reserve Chair Jerome Powell has all but confirmed that the central bank will announce a rate cut tomorrow. But whether the Fed will 

Powell is hoping to replicate Alan Greenspan’s victorious soft landing back in 1995, when the Fed then lowered rates amid a soaring stock market. To pull it off, Powell is relying on strong corporate profits and a 

 to buoy the economy and protect it from a rate-cut-induced tailspin.

 when the Fed lowers rates, according to a Bloomberg analysis tracking rate cuts since 1989. In fact, the S&P 500 rose an average of 13% in the six months following a rate cut during years where there was no recession.

Turning the clock back even further, the short-, medium-, and long-term market returns after a rate cut are impressive.

“During the five cutting cycles since 1984 where the economy did not quickly enter a recession, the S&P 500 typically returned +6% during the three months, +9% during the six months, and +17% during the 12 months after the first Fed cut,” Goldman Sachs Chief US Equity Strategist David Kostin wrote in a recent note.

Going back even further, since 1980, after each of the 20 times the Fed cut rates with stocks near all-time highs, the S&P 500 was 

, according to Chief Market Strategist at the Carson Group Ryan Detrick.

However, past performance doesn’t guarantee future results. After all, 

 is an ominous macro indication that things won’t be simple this time around.

And the presidential election this year is a wild card that differentiates this easing cycle from past soft landings. Given the highly charged rhetoric and varying economic policies proposed, the market will likely remain volatile heading into November.

So, while it’s too soon to declare victory quite yet, right now the Powell plane looks all clear for soft landing.—

What happens after the Fed cuts interest rates?

History shows that the market tends to rise in the months following interest rate cuts.

Powell is pulling a Greenspan

Trying to predict how the stock market will move is an age-old conundrum, and an endeavor 

 long-term. You’d think that Wall Street analysts would have a better idea than the rest of us.

But they’re not infallible. Wall Street equity researchers have been caught a step behind when it comes to economic meltdowns in the past. According to one strategist who spoke to MarketWatch, analysts 

 30% too bullish during peaks preceding economic crashes.

Now, some investors are questioning whether equity analysts’ lofty forecasts for 2025 are painting too rosy a picture of the economy right now—especially when economic data is flashing warning signs about a larger slowdown as the Fed gears up for rate cuts.

Overall, Wall Street is projecting huge corporate earnings growth over the next year, signaling their optimism about the economy. After all, it’s difficult for companies to make money in a recession.

 by the end of 2025—above their original projections of 12.8% at the beginning of this year, and far faster than 2024’s projected earnings growth of about 11%.

At the same time as Wall Street is raising hopes of strong growth next year, the Federal Reserve is digesting a slew of 

. The labor market is slowing down, inflation is decelerating but still sticky, and US manufacturing numbers are lower than economists anticipated.

 next week. But the size of the rate cut, and the pace on the way down, is still unclear. And as consumers continue to face inflationary pressures, corporate profits could take a hit.

 the economy will keep growing, and so will earnings. The Federal Reserve says the economy is slowing. Who’s right?

Rather than try to time the market or bet on it heading in one direction or another, experts advise investors to take some of the most rosy analyses with a grain of salt, and stay diversified across stocks and fixed income.—

Traders at their stations with Jerome Powell in the background

Wall Street vs The Fed: Who is right?

Traders are optimistic about the economy next year, but the Fed is cutting rates because the economy is slowing. So who's got it right? 

Somebody tell Wall Street to calm down

We knew that all eyes would be on Federal Reserve Chair Jerome Powell’s headline speech at Jackson Hole this morning, but what we didn’t know was how blunt Powell would be in outlining the Fed’s policy going forward.

The Fed head was more explicit today than he has been in the past, stating that the Federal Reserve will indeed lower rates—a 

 that still lifted markets when Powell confirmed it himself. Powell pointed to the 

 as the biggest indicator that the Fed needed to Uno reverse its monetary policy ASAP.

 “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”

 Yay!!!! 🤑💰Rates are coming down, invest and rejoice!!

The only questions left are what size September’s cut will be, and how quickly the Fed will bring down rates in the months ahead. The Fed will be keeping a close eye on labor market data, specifically the August jobs data that will be released September 6, to determine the depth of rate cuts. But Powell left open the possibility that cuts could be steep.

“The fact that the chair made mention that the ‘direction of travel is clear’ suggests to us that not only are multiple 25 basis points (bps) rate cuts being anticipated at this point, but that the door was open to moving 50 bps,” wrote BlackRock’s BlackRock's Chief Investment Officer of Global Fixed Income Rick Rieder in a note today.

But don’t get too excited—rates aren’t going to decline as quickly as they rose over the past two years.

“From a consumer perspective, it’s important to note that lower interest rates will be a gradual process,” wrote Senior Industry Analyst at Bankrate Ted Rossman in a note today. “The trip down is likely to be much slower than the series of interest rate hikes which quickly pushed the federal funds rate higher by 5.25 percentage points.”

The good times are expected to keep rolling for equities, according to analysts. So 

, and lock in high longer-term yields while you still can.—

Jerome Powell has given rate cuts the green light

The Fed chair signaled that rate cuts are coming soon during his speech at Jackson Hole.

The time has come

If you woke up this morning feeling rejuvenated and optimistic, you weren’t the only one.

Earlier today the Bureau of Labor Statistics released the July 

 report, which showed that inflation fell below 3% for the first time in three years.

Here’s what everyone was so excited about:

Prices increased 0.2% since June, about in line with analyst expectations.

Prices jumped year over year 2.9%, which was lower than expectations of 3%.

Core inflation, which excludes food and gas, increased 0.2% month over month, in line with expectations. This is the fourth consecutive month that core CPI has eased.

Plummeting energy costs and car prices pushed inflation down, while 

“Overall, short-term inflation dynamics were again very encouraging,” explained EY Senior Economist Lydia Boussour in a note today.

It's worth noting that, while a reading like today's would've sent markets soaring in the past, today's reaction was somewhat subdued—a sign that investor jitters still haven't completely faded.

the Fed should slash rates by. While recent 

 and consumer backbone may be breaking under the pressure of high rates, some economists argue that a cut of 25 basis points will be enough to supercharge the economy—while others want to see a 50 basis point cut.

“The inflation data has been good enough to allow the Fed to start cutting rates in September, but does not give them a reason to cut aggressively,” argued Senior US Economist at UBS Global Wealth Management Brian Rose. “The decision whether to cut by 50 basis points instead of the usual 25 bps may come down to the August labor report due on 6 September.”

“Reinvestment risk is here, and the need to rightsize excess cash or short-term yield positions is growing increasingly urgent,” wrote Head of Investment Strategy at JP Morgan Wealth Management Elyse Ausenbaugh in a note today.

That means if you have your cash parked in high-yield money market funds or similar short-term fixed income vehicles, now is the time to lock in higher, longer-term yields before lower interest rates lower your profits.

It also means that it’s wise to stay invested in risk assets, like stocks, given that a rate cut will likely boost the market.—