Weekly economic and financial commentary: Gradually, then suddenly

Summary

United States: Gradually, then suddenly

• This week’s economic data showcased how both sides of the Fed’s dual mandate are under pressure. Inflation is running closer to 3% than 2%, according to both the CPI and PPI. Meanwhile, the BLS’s preliminary benchmark revision revealed that the pace of job growth leading up to March 2025 was substantially weaker than previously thought.

• Next week: Retail Sales (Tue.), Housing Starts (Wed.)

International: Diverging decisions, emerging risks

• This week, the European Central Bank held rates steady, while Turkey surprised with a sharper-than-expected rate cut. Inflation edged up in Norway and Mexico, while price pressures continued to ease in Brazil. Finally, Argentina hosted elections where political risks resurfaced ahead of October midterms.

• Next week: China Industrial Production and Retail Sales (Mon.), Bank of Canada Policy Rate (Wed.), Bank of Japan Policy Rate (Fri.)

Interest rate watch: Cuts to begin again

We expect the FOMC to resume lowering the fed funds rate at its September meeting with a 25 bps rate cut that would bring the policy rate to a range of 4.00%-4.25%.

Topic of the week: Benchmark revision: Downshifting to a lower gear

The BLS's estimate of the preliminary benchmark revisions suggests that total nonfarm payrolls were roughly 911K lower than currently published in March 2025 (not seasonally adjusted). This year's downward revisions are large on a historical basis, beating the preliminary estimates in 2024 and 2009 (-818K and -824K, respectively). So what is the benchmark and what does it mean about payroll growth?

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