Weekly Economic Update: August 19, 2025

Markets rise on rate cut expectations

A lot was riding on inflation data last week, with many of the usual “experts” calling for the Consumer Price Index (CPI) to go up in response to tariffs. As usual, they were wrong, and the CPI stayed fairly steady for the month of July.¹

The expectations for an acceleration in inflation haven’t played out. Much was made about firms trying to front-run the tariffs and holding prices down initially. But let’s face it: If they could raise prices, they would. (Just drive by a gas station during a run-up in oil prices to see this dynamic in action.) But consumers are getting stretched with high prices and interest rates, so it doesn’t seem they are in the mood to tolerate more price hikes.

Fuel prices helped keep producer costs lower, so inflation remained in line with the prior month. If housing costs begin to come down, we could see 2% inflation in the next few months, but those remain stubbornly high. A while back, Federal Reserve Chair Jerome Powell was all about the Supercore inflation — prices that exclude food, energy, other goods and housing costs.² Supercore is up at a 1.9% annualized pace in the last six months, meaning the Fed has reached its target 2%.³

As a result, markets are still expecting a rate cut in September.⁴ Powell, however, has been and remains cautious, saying we will experience higher inflation due to tariffs.⁵ But tariffs don’t cause inflation. They can raise prices for the tariffed items, but they leave less money for other goods and services, so there is a leveling effect. So far, the consumer data is backing that up, and we haven’t seen a widespread increase in inflation like we had in 2021 and 2022 when the government was giving people money, and prices spiked.

The Producer Price Index (PPI) was a different story. The July number came in hotter than expected, meaning the people who make our “stuff” are paying more for the inputs they need to make said stuff.⁶ In theory, that means higher prices for consumers are just down the road. Sure, it’s troubling, but it’s also one month, so we’ll have to see how this plays out. It could be an anomaly or the start of something else.

One thing for sure right now is these higher costs are not being passed on to the consumer. If Powell is waiting for inflation to reappear, he may get his wish — but what will break before that? We’ve seen jobs and growth begin to soften, and if the economy rolls over, inflation likely won’t tick up with fewer people working and Americans spending less. The markets are keyed up for a 25-basis-point cut in September, which has been priced in. It would be a shame not to follow through on a cut, but stranger things have happened.

Trying to end the Ukraine War (again)

Although they don’t regularly or consistently impact markets like earnings or economic data, geopolitics can have an outsized effect on market performance. Logic would dictate that international serenity is preferred to turmoil.

To that end, President Donald Trump has tried to tamp down international conflicts to avoid more bloodshed and turmoil, with some success: India and Pakistan, Armenia and Azerbaijan, Rwanda and Congo, Cambodia and Thailand. He also directed our armed forces to knock out Iran’s nuclear capability, so they won’t be building any nuclear weapons anytime soon.

But conflicts in Ukraine and Gaza remain elusive. For the former, Trump tried to reach an agreement with Russian President Vladimir Putin on Friday to end the war in Ukraine, as the two met for three-plus hours in Anchorage, Alaska.⁷ Putin eventually agreed to meet Ukrainian President Volodymyr Zelenskyy, with Trump possibly in attendance.

It’s hard to see how this ends without Putin getting land concessions to stop and go away.⁸ The Ukrainians have vowed not to give up any land, but as we said earlier, stranger things have happened. We can only hope everyone follows through so the bloodshed can end and the world can get to a more harmonious place.

Coming this week

• Now that jobs (very weak in July) and inflation (holding steady but still above the Fed’s preference) are done, the only thing left is all the ruminating that will go on prior to Powell’s speech after the Jackson Hole Symposium this week. Then the only significant data point prior to the next Fed meeting on Sept. 16 will be the August jobs figure.
• On Wednesday, we will also get a glimpse at the minutes from the last Fed meeting in late July. We already know there were two very vocal voices calling for a rate cut, so there may be more juicy details.⁹
• Wednesday will also feature MBA mortgage applications, followed by weekly unemployment claims, U.S. economic leading indicators, the Philly Fed manufacturing survey and existing home sales on Thursday. No data on Friday, although the last of the second-quarter earnings reports will continue to straggle in through the end of the week.

Sources:

¹ U.S. Bureau of Labor Statistics. Aug. 12, 2025. “Consumer Price Index Summary.” https://www.bls.gov/news.release/cpi.nr0.htm. Accessed Aug. 18, 2025.

² Christopher J. Neely. Federal Reserve Bank of St. Louis. May 3, 2024. “Measuring Inflation: Headline, Core and “Supercore” Services.” https://www.stlouisfed.org/on-the-economy/2024/may/measuring-inflation-headline-core-supercore-services. Accessed Aug. 18, 2025.

³ First Trust. Aug. 12, 2025. “July CPI.” https://www.ftportfolios.com/Commentary/EconomicResearch/2025/8/12/the-consumer-price-index-cpi-rose-0.2percent-in-july. Accessed Aug. 18, 2025.

⁴ CME Group. “FedWatch.” https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed Aug. 18, 2025.

⁵ Alex Harring. CNBC. July 1, 2025. “Powell confirms that the Fed would have cut by now were it not for tariffs.” https://www.cnbc.com/2025/07/01/powell-confirms-that-the-fed-would-have-cut-by-now-were-it-not-for-tariffs.html. Accessed Aug. 18, 2025.

⁶ U.S. Bureau of Labor Statistics. Aug. 14, 2025. “Producer Price Index News Release summary.” https://www.bls.gov/news.release/ppi.nr0.htm. Accessed Aug. 18, 2025.

⁷ Laura Gozzi. BBC. Aug. 16, 2025. “‘Next time in Moscow?’: Five takeaways after Trump and Putin’s Alaska summit.” https://www.bbc.com/news/articles/c4gj9er0x0zo. Accessed Aug. 18, 2025.

⁸ Steve Holland, Andrew Osborn and Tom Balmforth. Reuters. Aug. 16, 2025. “Trump tells Zelenskiy that Putin wants more of Ukraine, urges Kyiv make a deal.” https://www.reuters.com/world/europe/trump-tells-zelenskiy-that-putin-wants-more-ukraine-urges-kyiv-make-deal-2025-08-16/. Accessed Aug. 18, 2025.

⁹ A Martinez. NPR. July 31, 2025. “Two Federal Reserve governors dissent on holding interest rates.” https://www.npr.org/2025/07/31/nx-s1-5486014/two-federal-reserve-governors-dissent-on-holding-interest-rates. Accessed Aug. 18, 2025.

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