What’s happening between Federal Reserve Chair Jerome Powell and the White House. At the same time, financial markets are cheering his commitment to stop raising interest rates. That means the Federal Reserve is expected to hold firm on its current rates in the next Federal Open Market Committee (FOMC) meeting this July. That forecast gets some backing from last week’s June Nonfarm Payrolls report.
In other ways, you could say that, lately, financial markets have totally agreed with Powell’s argument. Cumulatively, this shift reflects their increasing confidence in the Fed’s evolving monetary policy framework. Headline Nonfarm Payrolls came in much stronger than expected. This further stoked the market’s belief that interest rates were done rising for the foreseeable future. Investors are already looking ahead to the new June inflation report, due out on July 12, for more confirmation that Powell’s approach is warranted.
As you know, the dollar has skyrocketed. This rally is primarily fueled by the increasing anticipation of additional tariffs and a deepening sense of global trade protectionism. In any other time, these conditions have propped up the U.S. dollar. As global uncertainty increases, this trend looks to be re-emerging with a vengeance. Rising tensions in global trade wars are pushing investors towards safety, which the dollar offers. This change represents a retreat from the progressive alternative to procarcity conventional economic orthodoxy.
Importers who built up inventory this year expecting tariffs must now come to an important decision. With these built-up inventories starting to taper, a point has been reached that drives prices up and changes the effects on market forces. The third strong sign is that consumer spending continues to pick up steam. This rapid expansion may create strong demand and price shifts when importers begin to deplete inventory.
The next June consumer price index will come out Tuesday. We know this report is likely to be make or break for the markets. Analysts and investors will scrutinize this report for signals of where inflation is headed and what that means for monetary policy moving forward. The Federal Reserve’s current stance aligns with market expectations, reinforcing Powell’s position amidst the ongoing conflict with the White House.