While Wall Street indices continue to hit records, dovish members of the Fed are pushing for a rate cut next month. However, markets retreated ahead of July PCE inflation and trade data.
Expectations are for annual core PCE to rise to 2.9%.
The main focus will be on the August employment report, which will be released next week. Fed Governor Christopher Waller said that even a larger cut than 25 basis points is possible if the data is soft. However, recent data is strong: US growth revised to 3.3% and unemployment claims decreased. Despite this, futures are pricing in an 84% probability of a rate cut in September. Meanwhile, Fed Governor Lisa Cook has filed a lawsuit against President Donald Trump’s attempt to remove her from office. If the court is successful, Cook will be able to continue voting at the September meeting. This development has fueled debates about the independence of the Fed. The US tariff exemption for packages under $800 has ended, increasing costs for e-commerce companies and small businesses. On global markets, Chinese stocks experienced their biggest monthly rise in almost a year, while British banks fell 3-5%.Analysts predict the Fed will likely make a “hawkish rate cut” at its September meeting, and then remain on hold until the end of the year.
