Fed to resist pressure from Trump over rate cuts

Beyond the Powell headlines, the US economy continues to show resilience even as the first hints of the tariff impact appear in the inflation numbers.

Retail sales, weekly jobless claims and industrial production all came in higher than expected last week. While inflation numbers did not deviate much from expectations, core goods inflation firmed up somewhat, in a hint of tariff pass through, as the positive impact of pre-tariff stockpiling fades.

Full employment, healthy demand growth, a massive fiscal deficit and firm inflation are not consistent with an easing policy. We expect the Fed to resist pressure from Trump and keep rates unchanged next week.

There is also very little pressure on the FOMC to signal that cuts are imminent either.

Markets continue to hold a September cut as the baseline scenario, but last week’s solid data has very much put this view in doubt, which partly boosted the dollar against almost every other currency last week.