August 11, 2025
Last Week In A Nutshell: Last week saw no market moving economic data, leaving markets to mull over the July jobs report and continue playing everyone’s favorite parlor game: Who’s going to be the next Fed chair? But this week’s CPI report could move mortgage rates and make the Fed’s decision at their September 17 meeting very complicated.
Upcoming Attractions:
- Tuesday August 12 CPI and Thursday August 14 PPI reports for July:
- The key core (excluding food and energy) CPI month-on-month inflation metric is expected to come in at 0.31% for July, which would bring the year-over-year metric to 3.1%. Goods inflation is expected to increase in coming months as tariff effects show up while services inflation (notably shelter) is expected to continue moderating.
- PPI, excluding food and energy, is expected to come in at 0.2% month-over-month and flat year-over-year.
- A higher than expected inflation reading could force the Fed to decide whether they will indeed “look through” a tariff-induced inflation bump following the weak July jobs report.
- Friday 8/15
- Core retail sales is expected to increase by 0.4% in July
- Industrial production is expected to come in flat for July
- The University of Michigan consumer sentiment survey is expected to show a small increase from 61.7 to 62.0 in August. And 5-10 year inflation expectations are expected to decline slightly from 3.4% to 3.3%.
August 4-8 Highlights:
- Fed: Stephen Miran was nominated to the Federal Reserve Board by the President to fill Adriana Kugler’s seat after she stepped down six months early. Miran’s nomination could tilt the Fed toward more rate cuts, but the effect is likely to be minimal as he will be one of twelve voting members and the confirmation process will take months. His nomination might also be problematic for those worried about Fed independence, but it seems clear that President Trump intends for him to be a temporary placeholder until the administration figures out who to nominate for Chair after Jerome Powell’s term ends in May 2026.
- Economic Data: The Institute of Supply Managers (ISM) services index for July unexpectedly declined. Details in the report pointed to tariffs affecting prices and delaying planning for next year’s purchases. Initial jobless claims continued to come in near its average since mid-2022, but continuing claims continue to climb, indicating that people are having a harder time finding a job. These are more data points substantiating the stagflationary effects of tariffs, with higher inflation and lower economic growth.
Diving a Little Deeper:
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- Fed: The choice to nominate Miran also suggests that Christopher Waller, a current Fed governor, might have a slight edge over other leading contenders for the Fed chair position—Kevin Hassett and Kevin Warsh—since the President could have taken the opportunity to put one of them on the Board. The Fed Chair has to be an existing member of the Fed Board of Governors and if Jerome Powell chooses to not give up his seat on the Board when his term as Chair ends, the President would need to choose from existing Fed Governors. But, on the other hand, Miran may have been chosen because he would give up his seat if Chair Powell chooses to stay on the Board.
- Inflation reports:
- The Consumer Price Index (CPI) is the first piece of inflation data released in any month and, combined with the Producer Price Index (PPI), gives us an almost perfect read through to the Personal Consumption Expenditures (PCE) inflation report. The PCE is the Fed’s preferred inflation gauge but is not released until the end of the month. The Fed prefers the PCE because, unlike CPI, it gives a broader picture of cost increases as it includes spending done on your behalf (e.g., medical insurance). Mortgage rates almost never move with a PCE data release because investors already know how it will come in after CPI and PPI.
- The very weak July jobs report increased the odds of a rate cut at the September 17 Fed meeting to about 90% based on futures market pricing. But if the CPI and PPI reports come in high, the Fed will be left in the sticky situation of deciding which side of its mandate (low unemployment or low inflation) they want to prioritize. In most times, the Fed would choose inflation because there are non-montetary based tools to help with unemployment, but in the case of tariffs, the Fed has said that they could “see through” any resulting inflation because the price increases would be one-time. That assumption, however, relies on the trade war not expanding and consumer expectations regarding inflation to remain stable near the Fed’s target.
