America’s economic prosperity can’t be denied, as an abundance of economic indicators show incredible resilience in the face of political drama. The latest Core Consumer Price Index (CPI) inflation was 2.7%, indicating that inflation is not an immediate threat. That leaves only one explanation — the economy is doing really, really well. Retail sales were up 1% and industrial production was up 1.7%. These advances come on the heels of the Federal Reserve’s recent pop and stop move to raise the Fed funds rate. Even now, analysts are parsing Jerome Powell’s press conference.
This is not to say the Trump administration’s tariffs have not yet hurt the economy. Even as States put money to work in future, experts warn it could take 12 to 18 months to see full impact clearly. This lack of clarity has led to much speculation about the likely future impact. President Trump’s emergency powers could be on the chopping block at the US Supreme Court fairly soon. This might be the most important pro-growth decision in the making, ever. Notably, Trump has a whole arsenal of alternative emergency powers he can tap into if he decides he wants to exert more control.
The economic landscape is changing before our eyes. A number of signs point to raising rates by the Federal Reserve before the year is out. The dollar is gaining strength against the yen, breaking the 200-day moving average. As the market improves, this further represents a correction from earlier oversold conditions. Analysts cite US economic strength as the main reason for this increase. They mention a role being played by global uncertainties, pinpointing, particularly, Japan’s reluctance to intervene at the 150 level.
Even with this sunny forecast, the process by which the Federal Reserve makes these double-edged decisions has come in for criticism. There were two notable votes advocating for interest rate cuts recently, which highlights a divergence in opinions among policymakers regarding the path forward for monetary policy.
“The best we can do is say it’s not over yet. It can slow down, reverse a little, and resume. Picking the end point is just not possible.” – The Rockefeller Morning Briefing
The nuance of this unique economic landscape will require continued vigilance as information comes available. Strong growth in the retail and industrial sectors point to a strong recovery phase. Economists caution that they should be careful, especially in light of possible external headwinds that could stifle growth.
The Federal Reserve’s recent discussions on the possible course of action, coupled with Powell’s comments, have created a strong wave of speculation among investors and analysts. All of that said, it’s clear that many are anxious to figure out what these decisions will mean for our future economic performance. Continued tension between the need to promote economic growth and protect against high inflation will be a defining theme for policymakers going forward.
Strong retail performance and increasing industrial output contribute to an optimistic economic forecast. At the same time, Core CPI being stable in a more positive direction fuels the optimism. The tempestuous political landscape, including tariff concerns and move to protect the nascent solar industry, could introduce weeds into this otherwise tranquil garden. Whatever happens, as this process plays out, the market will watch closely, prepared to react to further information and any changes in policy direction.