Markets ended the week higher, following a relatively benign consumer inflation report that buoyed investors belief the Fed will cut rates by 0.25% in September. Despite a “hotter” than expected producer price report released later in the week, markets ended the week pricing in a 90%+ chance of a 0.25% rate cut at the Fed’s September meeting.
Since President Trump’s April 2 tariff announcement, widely anticipated consumer price increases have been slow to materialize, resulting in various explanations as to why. Businesses continue to work down elevated inventories built up in the first quarter in anticipation of higher tariffs; Trump’s multiple pauses in implementing higher tariffs extended the time until business had to purchase higher cost inventories; a large portion of prices increases have been, and/or will be, absorbed along the supply chain before reaching the end customer; and recent trade deals have resulted in lower tariff rates than initially assumed. Most likely it has been some combination of those factors. Nonetheless, the week’s inflation data revealed creeping upward pressure on prices, reigniting concerns further increase await in the months ahead.
Trade headlines were less prominent during the week though importantly Trump announced a 90-day extension of the current 30% tariff rates on Chinese goods, preventing them from reverting back to 140%.
This week, all eyes will be on Jackson Hole, Wyoming as global central bankers gather for the Fed’s annual economic symposium. Investors will be interested in any comments from Fed Chair Powell that might indicate his openness to a September rate cut.
