by Kim | Jul 21, 2025
Key events this week: S&P Prelim PMIs July, ECB monetary policy meeting, RBA Minutes
Recap from last week: Tariff echoes in inflation ahead of the FOMC
Last week’s US inflation and growth data offered important insights ahead of the upcoming FOMC meeting. Data provided some early insights into how tariff effects may be rippling through inflation figures, who is bearing the burden of those tariffs, and the impact of tariff uncertainty on growth momentum. The focus around the Fed’s policy settings has intensified, reflecting both external pressure for rate cuts and internal divisions within the Committee. Notably, Governor Waller’s speech last week, delivered following the inflation data, reiterated his argument for a rate cut at the upcoming July meeting.
The key concern for many has revolved around the tariff impacts on inflation, especially at a time when US inflation is not yet back to the 2% target (according to the Fed). Tracking these effects will likely remain tricky, particularly given that the tariff rates and the trade deal landscape continue to shift. Furthermore, it remains unclear what the average pass-through rate will be. Nevertheless, US data released last week provided three distinct perspectives on the inflation impact so far of tariffs on the US domestic economy: the CPI, import prices, and the PPI.
Firstly, US CPI increased as expected. The CPI, which includes services, imports, and sales taxes, saw headline inflation rise to +2.7% in Jun from +2.4% in May, with the monthly pace accelerating to +0.3% as expected. While tariffs likely played a role, other factors also contributed.
Measures of underlying inflation firmed. The core CPI increased to +2.9%, albeit lower than the expected +3%. Core goods prices have been firming over shorter annualized timeframes, showing an even stronger acceleration in the latest month, likely reflecting some early tariff impacts. Similarly, core services (excluding energy services) inflation increased over the month and accelerated slightly over the year. However, continued shelter price disinflation provided an offset to these increases.
Notably, both the trimmed mean and median CPI measures of underlying inflation accelerated in Jun on both an annual and monthly basis. This suggests that inflation increased within the core of the distribution, rather than due to larger outlier effects, highlighting a broadening effect of inflation among expenditure categories this month.
The second perspective of tariff impacts comes from a more upstream view, helping to answer whether exporters into the US are bearing or sharing the burden of tariffs. Since the import price index data excludes tariffs, exporters absorbing tariffs would show up as a fall in the import price index. While there may be cases where exporters are bearing, or sharing, some part of the tariff burden, on aggregate, the data shows little change in import prices.
Import prices excluding volatile fuel import prices increased by +0.1% in Jun, with the 3-month annualized rate lifting back up to +1.9%. The annual rate has hovered between +1.2% and +1.4% over the last four months. It’s still quite early in the process, especially as further trade deals and tariff rates are negotiated or imposed.
The final perspective considers the tariff impacts on domestic producers via the PPI. While the CPI includes imports and sales taxes, the PPI excludes them. However, tariff effects could still be reflected in the PPI through pressures from rising input prices.
So far, pressure from rising input prices has not been broadly reflected in rising selling prices by domestic producers. The headline PPI annual rate slowed to +2.3% in Jun from +2.7% in May. The monthly PPI in Jun was flat at 0%, versus +0.3% in May. However, PPI goods prices have been firming year to date, with the annual rate rising to +1.7% and PPI goods excluding food and energy rising to +2.6% in Jun. This may align more with varying surveys pointing to more widespread increases in input prices. The PPI final demand services prices provided a broader offset in Jun, falling by -0.1% over the month, and slowing to +2.7% over the year in Jun from +3.5% in May.
For the moment, the picture of tariff impacts on inflation suggests: direct impacts via the CPI appear to have firmed in Jun; exporters (in aggregate) do not appear to be bearing the tariff burden; and goods producer prices have been firming, possibly due to tariffs, albeit remaining at a low level. Together, the CPI and PPI data suggest that the Fed-preferred PCE inflation measure firmed in Jun with headline likely increasing to +2.5% and core PCE rising to +2.7%.
While the inflation picture remains murky amid tariff uncertainty, recent activity data reflect that ongoing uncertainty via slower growth momentum. Despite a few bright spots in the data last week, the Atlanta Fed GDP nowcast for the Q2 growth run-rate slowed further to +2.4%. Although retail sales rebounded in Jun, a downward revision to the retail ‘control group’ in May resulted in a modest drag on growth from consumer spending. Housing starts firmed only slightly in Jun, while the four-month trend continues to slow. Importantly, the most recent initial claims fell, but continuing claims remained at elevated levels, indicating that “slow hiring, slow firing” persists. Industrial production increased after two months of stalled output growth.
The latest Fed Beige Book survey indicated that activity increased slightly from late May through early Jun, an improvement over the last report. According to the report, “uncertainty remained elevated, contributing to ongoing caution by businesses”, especially related to hiring decisions. Tariff-led input pricing pressure remained ‘modest to pronounced’, especially in manufacturing and construction, while there were mixed reports on the degree of pass-through to customer prices. The report specifically highlighted that;
Contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer. (Source: Fed Beige Book – Jul 2025)
Against this backdrop of evolving impacts of tariffs on inflation and growth, the US Federal Reserve will meet on monetary policy on 30 July (next week). Recent comments from Fed officials highlight the varied perspectives on the path forward.
Last week, Governor Waller reiterated his case for a rate cut at the next meeting. This was based on the premise that, while the US economy is still growing, momentum has slowed significantly, and the risks to the FOMC’s employment mandate have increased. He argued that, based on the current data, policy settings should be around neutral. He advocated for a risk management approach, suggesting a shift in the timing of the two rate cuts that the majority of the Committee projected back in Jun. A cut sooner, in July, he argued, would still keep policy restrictive, even if inflation comes in firmer later in the year. Furthermore, if the economy weakens from here, a July cut would ensure the FOMC doesn’t fall behind the curve. For now, markets are pricing rate cuts in Sept and Dec (Source: CME FedWatch).
Outlook for the week ahead: Tariffs & trade negotiations, S&P Prelim PMIs July, ECB monetary policy meeting, RBA Minutes
It will be a mostly quiet data week.
The latest S&P prelim PMIs for Jul will be released this week, providing the first view of momentum going into Q3. On the central bank front, the ECB will meet this week, and US Fed speeches will be limited ahead of the FOMC meeting next week, though Fed Chair Powell will be giving ‘opening remarks’ this week. Pressure has been mounting on the Fed Chair in recent weeks, and threats/posturing around his tenure may be a source of headline risk. Similarly, the latest 1 Aug tariff/trade deal deadline is approaching at the end of next week. The focus this week is likely to be on negotiations with Europe and Japan.
US earnings results remain in focus this week.
Key factors & events to watch this week;
US data will be limited this week, with the remaining housing data and durable goods orders for Jun to be released.
- Durable goods orders for Jun are expected to fall -10.3% after a +16.4% increase in May – this will feed into the almost final Atlanta Fed GDP nowcast for Q2 US growth.
- US existing home sales for Jun are expected to be unchanged at 4.0m (annualized), from 4.03m in May.
- New home sales are expected to increase by 0.65m in Jun, up slightly from 0.623m in May.
Central Banks
- The ECB will meet on monetary policy this week, and is expected to keep its policy rate unchanged at 2%.
- The RBA minutes of the latest meeting will be released. This might hold some further insight into the decision to stay on hold, rather than cut as markets had expected.
- The latest BoC Business Outlook Survey will be released.
- Despite this being the blackout period ahead of the FOMC meeting next week, Fed Chair Powell will give opening remarks at a conference in DC, while Vice Chair (Supervision) Bowman will deliver a speech on innovation at the same conference. Details are here.
S&P Prelim PMIs for the major economies, plus Australia, for Jul will be released. This will provide some insight into growth momentum at the start of Q3, progress on prices, and the impact of renewed tariff threats on sentiment for the outlook.
This week, the US Treasury will auction and/or settle approx. $470bn in ST Bills raising approx. $67bn in new money. The US Treasury will also auction the 10-year TIPS and the 20-year Bond this week – both will settle next week.
QT this week: Approx $9.8bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Jul 14, 2025
Key events this week: US – CPI, PPI, Import Prices, & Retail Sales, Global CPI – Canada, Japan, Euro area, & the UK
Recap from last week: FOMC uncertainty over tariff impacts, while tariff threats reignited
The news on tariffs last week was mostly negative. The imposition of higher tariff rates was threatened across a range of trading partners, and several sector-specific tariff rates were floated. Another extension was granted on the implementation of reciprocal tariffs, providing a small window to negotiate leading up to the next deadline of 1 August. With tariff deadlines pushed out for another few weeks, uncertainty remains a significant factor.
Details on deals remain limited. It seems like only the UK framework has been signed off. There are even question marks over the framework agreed to with Vietnam (source: Politico). Further threats were made against Canada, Mexico, Europe, Brazil, as well as increasing the blanket tariff rate to 15-20% “on most” trading partners (Source: Bloomberg). Sector-specific tariffs were announced, which included a 50% tariff on copper and pharmaceuticals (which has a longer 1-2year lead time).
This latest episode underscores that uncertainty over the “final” form of tariffs is likely to stay elevated, which has implications for policymakers. Indeed, rather than a definitive ‘final’ version of tariffs, we may need to accept that tariff threats, uncertainty, and bargaining could be defining features of the current administration’s trade policy. Nonetheless, a decision on the blanket tariff increase will be important. The reciprocal tariffs remaining at the lower level make it possible for exporters and importers to share the tariff burden to maintain market share, likely resulting in little consumer inflation impact. For example, data from the BoJ last week indicated that Japanese auto manufacturers have so far appeared to absorb the (albeit much higher) 25% auto tariff to maintain US market share (source: Bloomberg). More broadly, though, higher blanket tariff rates may make it unprofitable for exporters and importers to absorb. This may lead to larger inflation impacts and a greater demand shock for exporters if US consumers pull back from higher-priced items. This is something the Fed is watching: higher prices and a slower growth backdrop.
This was reflected in the latest FOMC minutes, which highlighted two major themes. The first concerned the impact of tariffs on inflation. Considerable discussion revolved around the persistent uncertainty over the timing, size, and duration of these tariff effects on inflation. This occurred against a backdrop where Fed commentary still acknowledged that the starting point for tariff impacts is from a base where inflation remains “somewhat elevated.” Generally, there was agreement that growth and the labor market were solid, while monetary policy was moderately or modestly restrictive. This left the committee “well-positioned” to wait for more clarity on the outlook for inflation and economic activity.
While all participants viewed it as appropriate to keep policy unchanged at this meeting, there was greater divergence over the outlook for monetary policy, and this was the second major theme of the minutes. Most participants favored some reduction in the target range for the federal funds rate (FFR) this year, noting that upward pressure on inflation from tariffs would be temporary or modest, or that there could be some weakening in economic activity or the labor market. A couple of participants (Waller and Bowman) favored a cut as early as July. Conversely, some participants saw the possibility of no rate cuts in H2 of 2025. These participants noted that recent inflation readings had continued to exceed targets, that there was still some upside risk to inflation, or that they expected the economy to remain resilient; they also suggested the current target range for the FFR might not be far above its neutral level. Markets continue to price in two rate cuts this year (source: CME FedWatch)
There were two central bank meetings last week – both still focused on their inflation dynamics. The RBA shocked markets by remaining on hold – markets were expecting a 25bp cut. The decision was a 6-3 split in favour of a hold, with 3 voting for a cut. The RBA Governor noted in her press conference that the decision was “about timing rather than direction”. The Board kept rates on hold at this meeting because, although the last two monthly inflation reports had shown good progress, some components suggest that the comprehensive quarterly report for Jun could come in higher than forecast. Furthermore, the key trimmed mean inflation rate had only just moved into the RBA’s target band, so with unemployment remaining low, the Board judged it had time to confirm inflation was on the path to reach the middle of the target range on a sustainable basis.
The RBNZ stayed on hold as expected. However, the easing bias was added back into the statement, noting that if inflation pressures continue to ease as projected, the Committee expects to lower the official cash rate further. The case for keeping the OCR on hold at this meeting highlighted the elevated level of uncertainty and the benefits of waiting until August in light of near-term inflation risks. Some members emphasized that waiting would allow the Committee to assess whether weakness in the domestic economy persists, and how inflation and inflation expectations evolve.
Outlook for the week ahead: US – CPI, PPI, Import Prices, & Retail Sales, Global CPI reports; Canada, Japan, Euro area, & the UK
The main focus of the week ahead will be on inflation, both in the US and in other key economies. US Fed Chair Powell recently noted that despite some benign monthly inflation readings, he expected that tariff-led inflation impacts may begin to appear in the data starting in June or July. Consequently, the US CPI, PPI, and Import Price Index reports for June, due out this week, will be crucial for beginning to identify tariff impacts and understanding changes in the inflation outlook.
There will also be a range of US data out this week, providing further insight into spending and housing activity at the end of Q2, providing an important update on the growth backdrop.
Tariff headline risk is likely to remain elevated. Also, US earnings results for Q2 will pick up this week.
Key factors & events to watch this week;
US CPI, PPI, and Import/Export price inflation data for June
- Headline CPI is expected to increase by +0.3% in Jun, up from +0.1% in May. The annual rate is expected to increase by +2.7% in Jun, up from +2.4% in May.
- Core CPI is also expected to increase by +0.3% in Jun, up from +0.1% in May. This could result in the annual rate increasing to +3.1% in Jun, up from +2.8% in May.
- Headline PPI is expected to increase by +0.3% in Jun, up from +0.1% in May.
- Core PPI is expected to increase by +0.2% in Jun, up from +0.1% in May.
- US import prices are expected to increase by +0.2% in Jun, up from 0% in May.
Key US spending and activity data for June
- US retail sales for Jun are expected to increase by +0.2% in Jun after falling by -0.9% in May. Slowing consumer spending has evolved as a key feature of the US growth backdrop recently, with a smaller contribution from consumer spending contributing to moderating growth so far in the Q2 GDP tracking.
- US industrial production is expected to increase by +0.1% in Jun, after falling by -0.2% in May.
- US housing data is expected to reflect ongoing subdued conditions in the housing market. New permits are expected to be little changed at 1.39m (annualized) in Jun versus 1.394m in May. Housing starts are expected to firm slightly to 1.29m (annualized) in Jun from 1.256m in May.
- US initial jobless claims have been edging lower recently, but are expected to increase by 234k last week, after slowing to 227k in the prior week. The trend of continuing claims will be important, as they remain elevated at 1.965m.
US Federal Reserve
- The latest Fed Beige Book will be released this week, providing a range of insights and anecdotes on business and household activity.
- There will be a range of Fed speeches this week. A notable speech will be Fed Governor Waller speaking on the Economic Outlook on Thursday. Governor Waller has been a proponent of restarting rate cuts in July, so this speech will be important as it will likely incorporate his assessment of the latest inflation data for Jun into his outlook.
Global inflation reports
- Canada headline CPI for Jun is expected to increase by +0.2% over the month, after increasing by +0.6% in May. The annual rate remained at +1.7% in May, with downward pressure from energy prices. The BoC preferred core measures of trimmed mean and median inflation are both expected to be unchanged at +3% over the year.
- UK inflation is expected to be little changed. Headline inflation is expected to remain at +3.4% in Jun versus +3.4% in May. Core CPI is expected to be unchanged at 3.5% over the year in Jun.
- The Euro area final CPI report for Jun is expected to confirm headline inflation at +2% and core inflation at +2.3%.
- The BoJ preferred measure of inflation is expected to ease to +3.3% over the year in Jun, from +3.7% in May.
China and Japan’s trade data for Jun will be interesting for tracking any tariff-related impacts.
Finally, the Aussie labour market report for Jun is expected to show a rebound in employment growth this month. The unemployment rate is expected to be unchanged at 4.1%.
This week, the US Treasury will auction and/or settle approx. $559bn in ST Bills, Notes, and Bonds raising approx. $63bn in new money.
QT this week: Approx $24bn of ST Bills, Notes, Bonds, and TIPS will mature on the Fed balance sheet and will be reinvested. Approx $2.3bn in Notes, Bonds, and TIPS will mature on the Fed balance sheet and be redeemed.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Jul 7, 2025
Key events this week: US tariffs, FOMC Minutes, RBA & RBNZ Meetings
Recap from last week: Jobs Report Solidifies Fed’s Patient Stance as Tariff Deadline Looms
As the next critical deadline for reciprocal tariffs looms this week, the Federal Reserve remains firmly in a ‘wait-and-see’ mode regarding policy adjustments. This cautious stance was likely reinforced by the still solid June labor market report. However, the FOMC will continue to monitor the softening U.S. growth backdrop as it awaits the finalization of tariff rates and the impact of these tariffs to appear in the data. While global activity indicators suggest some improved momentum through the end of Q2, this positive trend is set against a backdrop of considerable uncertainty, especially as focus shifts back to the potential for tariff headline risk this week.
At the ECB Forum on Central Banking last week, Fed Chair Powell reinforced that the Fed is waiting to see the effects of tariffs on inflation. Decisions will continue to be made meeting-by-meeting, and while Chair Powell did not rule out a July rate cut, he emphasized that “it will depend on how the data evolve” (source: Bloomberg). With several Fed officials supporting an earlier restart to rate cuts, the June US labor market data was seen as one potential catalyst to bring forward a rate cut to July, especially given the concern over the recent increase in continuing claims.
Overall, however, last week’s labor market data for June makes it less likely that the Fed would restart rate cuts as early as July. Broadly, the labor market continues to reflect this ‘slow hiring, but slow firing’ dynamic as firms pause key decisions, not just on hiring, but also on capex, amid uncertainty remaining over the ‘final’ view of tariffs and the effects on demand.
In June, the headline growth in non-farm payrolls was stronger than expected in Jun at +147k (expecting +120k) versus +144k in May. There were some small positive revisions to the prior months. Across different timeframes, payroll growth has slowed but seems to have stabilized at a low level more recently. The sector split this month suggested that private sector payroll growth had slowed, while government payroll growth rebounded after several months with little growth.
The household survey reflected a mixed result, with conditions in the broader 16yrs+ group improving slightly in June after weakness in May. Employment returned to growth but did not retrace the sharp fall in employment in May. Participation declined, and this contributed to the fall in the unemployment rate from 4.2% to 4.1%. The flows to and from unemployment indicated a more positive backdrop this month. Conditions in the core working age group, 25-54 years, improved to a greater degree, with stronger employment growth and an increase in participation. The unemployment rate fell notably from 3.6% in May to 3.3% in Jun, to be back on par with the unemployment rate recorded a year ago.
Less positive was weakness in aggregate hours worked, which fell by -0.2% in Jun alongside the slight fall in the average workweek. Average hourly earnings growth also slowed to +0.2% in Jun and to +3.7% over the year. The combination of modest payroll growth, slightly declining hours, and slower average earnings growth suggests that labor income growth may be subdued.
Amid sustained, albeit slower, labor market momentum and continued elevated uncertainty surrounding the tariff outlook, the broader U.S. growth backdrop continues to moderate. The latest Atlanta Fed GDP nowcast for US Q2 GDP growth shifted lower again last week from +2.9% at the start of the week to +2.6%. This was led primarily by a smaller and slowing contribution from personal spending and non-residential investment spending. Business surveys showed conditions in manufacturing mostly stabilized, while services activity recorded a modest expansion. Surveys reported pricing pressure persisted in Jun and optimism in the outlook remained subdued. Auto sales in Jun continued to fall, slowing to the slowest pace of the YTD – likely unwinding the stronger sales to front-run tariffs in March and April. This will feed into the broader retail sales result for June (to be released next week).
The broader global growth backdrop remained positive at the end of Q2, with activity continuing to expand. The S&P Global output PMI for Jun showed that global manufacturing and services output both expanded at a more moderate pace, supported by an expansion in new orders and employment. Despite some positive momentum to end the quarter, the survey continues to warn that activity front-loaded into H1 (to front-run tariffs), could begin to unwind in H2, “as drags from US tariffs and related policy uncertainties begin to bite” (source: S&P Global Composite PMI Jun).
Outlook for the week ahead: US tariffs, FOMC minutes, RBA & RBNZ meetings
It will be a relatively quiet data week.
The focus shifts to the July 9 deadline for reciprocal tariff rates this week. By this date, countries are expected to have either finalized a deal framework or face tariff rates set by President Trump. The effective date of these tariffs on August 1 may allow for some further negotiation. Key deals/frameworks with the EU and Japan are yet to be announced and will be closely watched this week.
More broadly, the specific tariff rates announced will be important for the outlook. Last week’s trade deal with Vietnam, for instance, saw their reciprocal tariff rate reduced from 46% to 20% – a notable cut from the initial announcement, but 20% is still a relatively high rate. The three-month reprieve to negotiate lower reciprocal tariffs helped to restore some calm after the initial Liberation Day announcements. So the risk this week is that while some tariffs may be lowered from their initial proposal, even those reduced rates could remain elevated. This, combined with the risk of upside surprises could dent a fragile calm and negatively impact sentiment surrounding the inflation and growth outlook.
Key factors & events to watch this week;
US reciprocal tariff announcements
US Federal Reserve
- FOMC minutes of the 18 June meeting will be released this week.
- Fed speeches: Fed Governor Waller will speak on Thursday on the Balance Sheet. Governor Waller has been a proponent of restarting rate cuts earlier, so he may make some comments relating to the labor market and rates.
- US Consumer Credit change for May; growth in US consumer credit is expected to slow to +$10bn in May from +$17.9bn in April.
RBA meeting
- The RBA is expected to cut rates by 25bps this week as inflation continues to move towards the mid-point of the target range.
- The Board reduced the cash rate by 25bps at the last meeting, citing further evidence of easing inflation, as well as adverse global trade developments shifting the balance of risks to the downside for Aus activity and inflation.
RBNZ meeting
- The RBNZ is expected to stay on hold at this meeting. At its meeting in May, the RBNZ cut rates by 25bps and removed the more explicit easing bias, with the RBNZ Governor noting that the official cash rate was now likely in the ‘neutral zone’.
This week, the US Treasury will auction and/or settle approx. $480bn in ST Bills, raising approx. $16bn in new money. The US Treasury will also auction the 3-year and 10-year Notes, and the 30-year Bond this week and will settle on 15 Jul.
Approx $15bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Jun 30, 2025
Key events this week: US non-farm payrolls, ISM surveys, ECB Forum on Central Banking, US Independence Day Holiday
Recap from last week: US Growth Cools while the Inflation Path Remains Unclear
After a period of elevated geopolitical anxieties, this week’s economic spotlight shifted firmly back onto the health of the US economy. Last week’s activity, spending, and inflation data for May provided a crucial snapshot of the growth trajectory and momentum of the US economy as firms and households adjust to the new tariff and policy regime.
Following a broad range of US economic data releases last week, the Atlanta Fed GDP nowcast growth run rate for Q2 saw a modest step down from +3.4% to +2.9% after the May data. This deceleration reflects a continued reduction in the contribution from personal spending, alongside a slightly larger drag from falling residential investment spending and from the change in inventories. These effects were only partially offset by a larger positive contribution from net exports, as tariff-led distortions on exports and imports continue to reset. Excluding the contributions from net exports and the change in private inventories, the proxy for domestic final sales slowed, edging from +1.7% growth to +1.6% (annualized over the quarter). The slowing momentum in Q2 comes on the back of Q1 GDP contracting at a slightly faster pace of -0.5%. This revision lower was led by slower/stalled growth in personal spending in Q1.
Drilling deeper into the drivers of this softening activity in May, last week’s data in particular sheds some light on a nuanced consumer landscape. While the underlying footing of labor market income for personal spending still looks solid, several headwinds, including subdued sentiment, could be dampening spending activity for now.
Consumer sentiment, as measured by both the Michigan and Conference Board surveys, has remained at subdued levels. Measures of consumer expectations for both the economic and inflation outlook have borne most of the negative brunt of not only this tariff episode, but also other policy measures such as government job cuts. While the recent easing of tariff rhetoric has brought some stabilization to the negative trends, still subdued sentiment indicates that consumers remain concerned about inflation, the labor market, and slowing growth, likely providing a negative backdrop for spending intentions.
Importantly, despite the fall in overall personal income this month, the income indicators reflecting labor market conditions remained solid in May. This suggests a still solid underlying footing for consumers and households. Headline personal income was softer than expected, falling by -0.4% in May versus +0.7% in April. The decline in May was primarily driven by two factors: a fall in proprietors’ income from the farm sector, which is relatively small share of overall income, but accounted for nearly 40% of the fall in aggregate income for the month, and a decline in transfer receipts after last month’s back-payment spike. Importantly, indicators reflecting labor market conditions remained solid in May. Wages and salaries growth remained at a solid +0.4% for the private sector, while wages and salaries growth slowed to +0.3% for the government sector, consistent with the slower growth in government payrolls flagged last month.
The recent increase in initial claims has raised concerns over a softening labor market, potentially impacting incomes. Last week, initial claims did ease, while continuing claims (lagging by a week) moved higher again, remaining above 1.9m and reflecting this slower hiring environment. We’ll get a more comprehensive update on the US labor market for June this week to see the degree to which this recent rise in claims and continuing claims is manifesting in unemployment and how that may impact the outlook for household spending and income.
The final piece of the puzzle was the more pervasive sign of slower consumer spending. In real terms, personal spending fell by -0.3% in May after a more subdued increase of +0.1% in April. While tariff distortions are visible in goods spending, we also noted slower growth in spending on services, which slowed to 0% in May – a slowing that was reflected across most services expenditure categories. It remains to be seen if this is temporary. There are, however, several headwinds to consumption growth that can’t be ignored, including slowing payrolls, led by government job cuts, notable uncertainty over the outlook/subdued sentiment, and falling immigration.
Looking at the latest survey data, the prelim US S&P PMI for Jun indicated that activity likely remained moderate in the final month of Q2. The composite output indicator suggested that activity continued to grow, though it did ease slightly. Falling exports across manufacturing and services acted as a drag on growth, but were offset by another round of (reportedly) tariff-led inventory building. Backlogs continued to increase, and firms expanded employment. Tariff-led price pressures persisted – the price indexes rose at an especially sharp and increased rate in manufacturing, but also continued to rise steeply in services.
This evolving economic backdrop, particularly the dynamics of slowing growth and cautious consumer activity, along with inflation concerns stemming from tariffs, remains central to the Fed’s policy considerations. While expectations of tariff effects on inflation are on the Fed’s radar, the latest PCE inflation report for May again showed little tariff impact so far. Headline PCE inflation came in as expected at +2.3% in May, while the rate in April was revised higher to +2.2%. Core PCE inflation came in higher than expected over the month at +0.2% and by +2.7% over the year, with the prior annual rate also revised higher. Core goods PCE inflation has stayed firmer year-to-date, while the overall slower monthly readings have been driven by an easing in core services inflation. Housing disinflation continues to progress consistently. Super core services excluding housing also showed signs of slowing, yet the annual rate remained unchanged at +3.1% (still below +3.5% from a year ago) in May.
Despite the more benign monthly inflation readings recently, the annual rates of PCE inflation have remained little changed, cycling over slower readings from a year ago. This will be important as we head into the June and July inflation readings. Fed Chair Powell’s testimony last week flagged that the June and July inflation reports would be important, as inflation impacts from tariffs were expected to begin to show up. Chair Powell noted he was open to the idea that these tariff effects could be less than anticipated, reiterating that a wide set of outcomes was still possible. He did not buy into the timing debate for when Fed rate cuts may restart, but did acknowledge that if inflation was weaker or if the labor market deteriorates, the Fed could cut rates sooner. Chair Powell stated there was a case to cut rates now, but emphasized that data is backward-looking and expectations for inflation to move higher due to tariffs cannot be ignored. So far, markets are pricing in two, with a possible third rate cut in the second half of this year (source: CME Fed Watch).
Outside of the US, the suite of prelim PMIs showed that activity stabilized across both manufacturing and services sectors in Jun. While there was a broad, modest uptick in overall economic activity (largely service-led), the global picture remains one of heightened uncertainty driven by geopolitical tensions and tariff policies, which are impacting exports and causing inflation trends to diverge (price spikes in the US due to tariffs, but moderation elsewhere). The labor market generally reflects this cautious outlook, with either slowing job creation or outright cuts in some regions.
Outlook for the week ahead: US non-farm payrolls, ISM surveys, Global PMIs, ECB Forum on Central Banking, US Independence Day Holiday
The week ahead will feature a broad range of important US economic reports, including the crucial payrolls and labor market data for June, the full suite of global PMIs for June, and the ECB Forum on Central Banking. The passage of the US budget reconciliation bill – the One Big, Beautiful, Bill Act – is expected to be completed this week and signed in time for the Independence Day Holiday deadline on July 4. News of progress on trade deals is expected to increase as the July 9 reciprocal tariff deadline approaches.
Key factors & events to watch this week;
A broad update on the US labor market for June. This is important given the recent weakening in the initial claims data, as well as what it may mean for a softer spending outlook. NOTE that the key labor market data will be released a day earlier than usual on Thurs, 3 July.
- US non-farm payrolls are expected to increase by +120k in Jun, after a +139k increase in May.
- The unemployment rate is expected to increase to 4.3% from 4.2% in May.
- Average weekly hours are expected to be unchanged at 34.3hrs.
- Average hourly earnings are expected to be unchanged at +3.9% growth over the year.
- Job Openings for May (lags by a month) are expected to increase slightly to 7.4m from 7.39m in April.
- Challenger Job Cut Announcements for Jun are expected to remain elevated. In May, job cut announcements came in at 93.8k.
- Initial jobless claims for the week ending 28 Jun are expected to remain little changed at 239k versus 236k in the prior week.
US economic activity reports will be important for gauging momentum into the final month of Q2.
- The ISM PMIs for June are expected to show some marginal improvement. The contraction in manufacturing activity is expected to abate slightly to 48.8 in Jun from 48.5 in May. Services activity is expected to expand from 49.9 to 50.8 in June. The price indexes in both of these surveys have been reflecting more widespread increases in prices, and it will be important to see if that continues.
- The final goods trade balance for May will be released and is expected to remain close to the -$96bn deficit reported last week.
- US Factory Orders for May are expected to increase by +8% after falling by -3.7% in April.
ECB Forum on Central Banking – Sintra
- While the forum goes for several days, the key event will be a policy panel on Tue 1 July with US Fed Chair Powell, ECB President Lagarde, BoE Governor Bailey, BoJ Governor Ueda, and Bank of Korea Governor Rhee Chang-Yong.
- The full schedule can be found HERE.
Europe
- The prelim Eurozone headline CPI for Jun is expected to increase slightly to +2% in Jun from +1.9% in May. Core CPI is expected to be unchanged at +2.3%.
- The latest ECB minutes will be released.
The broader suite of global S&P PMIs for Jun will be released this week.
This week, the US Treasury will auction and/or settle approx. $652bn in ST Bills, Notes, Bonds, and TIPS, raising approx. $121bn in new money. Of this amount, only $5bn in new money will fall into Q3.
The US Treasury announced the first of a series of Cash Management Bills (CMB) to manage debt limit-related constraints. Starting this week, the US Treasury expects to issue a series of CMBs for up to $250bn in aggregate, to mature in the second half of Sep 25. More details HERE.
QT this week: Approx $36bn of ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $4.6bn in Notes and Bonds will mature on the Fed balance sheet and be redeemed.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
by Kim | Jun 23, 2025
Key events this week; US PCE Inflation, Fed Chair Powell testimony, US goods trade balance (prelim), and S&P prelim PMIs Jun
Recap from last week: Central Banks Navigate Trade Uncertainty
Amidst persistent tariff and trade uncertainties, major central banks—including the Fed, BoJ, and the BoE—maintained their cautious “wait and see” approaches last week. The global economic outlook continues to be overshadowed by trade tensions and now, elevated, and potentially, escalating geopolitical risks following the US strikes on Iranian nuclear facilities over the weekend.
Last week, the FOMC kept rates on hold, noting that, with the US economy remaining ‘solid’, policy remained well positioned to respond in a timely way to economic developments. The decision reflected some easing in tariff-related uncertainty compared to the prior two meetings, with Powell noting that tariff uncertainty peaked in April. There is still a high degree of uncertainty over the “final” version of tariffs and how they might flow through the supply chain into prices and activity; however, Powell noted that “we’re going to learn a great deal more over the summer on tariffs”. The latest projections showed members revised core PCE inflation higher and growth slower through the end of 2025. The path of rate cuts has become split between members projecting no rate cuts through the end of the year, and members projecting at least two rate cuts through the end of the year. In his press conference, Chair Powell highlighted that one of the Fed’s jobs was to “make sure that a one-time increase in inflation doesn’t turn into an inflation problem”. In contrast, Fed Gov. Waller reiterated his case to “look through” tariff-led inflation, expecting it to be a mostly one-off effect (source: CNBC interview 20 June). Gov. Waller advocated to restart rate cuts as early as the July meeting given the recent run of more favorable inflation reports allowing for his “good news” rate cuts – but he also highlighted that these cuts would likely need to take a slow, steady path.
The Fed’s decision continues to highlight the importance of tracking inflation impacts, the labor market, and activity. The trajectory of growth through this initial tariff & trade shock has been mostly resilient – with distortions creating uncertainty over the near-term path of growth. Other policy items, including immigration, fiscal, and geopolitical events, are now coming into the frame, adding a further layer of uncertainty over the growth and inflation outlook.
US data last week was mostly weaker than expected and growth expectations for Q2 edged lower. The latest Atlanta Fed GDP nowcast showed growth slowing from +3.7% at the start of the week to +3.4% by the end of the week. The main contributor to the slowdown was the larger-than-expected fall in nominal retail sales in May, driven by the notable fall in motor vehicle sales, as well as the fall in gasoline prices affecting nominal sales growth. The fall in housing starts also contributed to the slower growth run rate for Q2 – as residential investment spending continues to contract slightly through Q2. Manufacturing output was little changed after falling in Apr. Excluding the +5% increase in motor vehicle output, manufacturing output fell by -0.3% in the month. The latest initial claims fell slightly to 245k while the focus remains on continuing claims near this cycle high of 1.945m.
The BoJ kept its policy settings on hold, continuing to cite uncertainty over the outcomes of trade negotiations on output and prices. For now, there has been no trade deal negotiated between the US and Japan. The BoJ did announce it was slowing the pace of cuts to its Bond buying program, starting next April, as it maintained its overall policy normalization bias.
“We made our decision to ensure we’re not cutting purchases too fast in a way that would cause a negative impact on the economy through abnormal volatility in yields,” Ueda said at a press briefing after the decision. (Source: Bloomberg)
The latest Japanese inflation data will likely keep the BoJ on edge as food prices (ex-fresh food) continue to rise. The BoJ preferred measure of core CPI ex fresh food increased to +3.7% in May, as the monthly rate eased to +0.4%, but remained elevated. CPI excluding fresh food and energy increased to +3.3% over the year in May, as the monthly pace slowed to +0.3%. The BoJ will continue to monitor impacts from tariffs, as well as impacts on energy prices from geopolitical events.
The BoE kept its policy rate unchanged this month in a 6-3 majority vote. According to the decision, disinflationary progress had continued, but there was not a strong case for a further easing of monetary policy at this meeting. Inflation is expected to stay at around the +3.5% rate for the remainder of the year. Inflation had increased to +3.4% in May from +2.6% in Mar, in line with expectations and due mostly to the rise in regulated prices and energy prices in Apr. At the same time, UK GDP growth may have weakened at the start of Q2, and the labour market has continued to loosen. The latest retail sales (volume) result for May showed a notable fall of -2.7% over the month adding further to concerns of a growth slowdown. Guidance from the BoE continued to cite “heightened unpredictability in the economic environment”.
In contrast, the Swiss National Bank reduced its policy rate back down to zero; after previously signaling it was likely finished with easing. Market turmoil resulting from recent US policy shifts was seen as a catalyst for a strengthening Franc and falling prices;
Speaking to reporters in Zurich on Thursday, President Martin Schlegel said the SNB is attempting to counter “lower inflationary pressure” and stressed that the central bank “will continue to monitor the situation closely and adjust our monetary policy if necessary.” (Source: Bloomberg)
Outlook for the week ahead; US PCE Inflation, Fed Chair Powell testimony, US goods trade balance (prelim), and S&P prelim PMIs Jun
As we look to the week ahead, expect a broad range of economic events, data, and persistent risks. Geopolitical concerns will likely remain elevated with the degree of escalation in the conflict unclear. The data calendar highlights include US inflation and growth, alongside early insights into broader activity momentum from the S&P prelim PMIs for Jun. Furthermore, central bank commentary and the looming July 9 reciprocal tariff deadline will also remain firmly on the radar.
Key factors & events to watch this week;
The Fed-preferred PCE inflation data for May will be released this week.
- Headline PCE inflation is expected to increase by +0.1% over the month, unchanged from +0.1% in Apr. Annual headline PCE inflation is expected to increase by +2.3% in May, up from 2.15% in Apr.
- Core PCE inflation is expected to increase by +0.1% in May, in line with +0.1% in Apr. The annual core PCE inflation rate is expected to increase from +2.5% in Apr to +2.6% in May.
US consumption and activity data will feature heavily this week. This includes the advance economic indicators showing how the trade balance in goods is evolving amid the tariff agenda and how it’s likely to affect growth in Q2.
- US Personal spending growth is expected to be unchanged in May at +0.2% from +0.2% in Apr.
- US Personal income growth is also expected to slow in May to +0.2% from +0.8% in Apr.
- The latest prelim goods trade balance for May is expected to widen slightly to -$91.9bn. The Apr goods trade balance narrowed notably to -$87bn after sharp falls in imports. This resulted in a positive impact on Q2 growth – so the degree to which this trend continues will be important for Q2 growth.
- US Q1 GDP is expected to be confirmed at -0.2% (annualized).
- US durable goods orders are expected to increase by +0.1% in May after a -6% fall in Apr.
- US new home sales are expected to ease further to 0.692m (annualized) in May from 0.743m in Apr. Existing home sales are expected to remain weaker at 3.96m annualized in May, down from 4.0m in Apr.
- Both the Conference Board and Michigan consumer sentiment surveys for Jun will be released this week – both providing a view of changes in consumer expectations in the outlook.
- US initial claims are expected to be unchanged at 247k in the week ending 21 Jun 2025.
Central bank speeches and testimony will feature this week.
- US Fed Chair Powell will give two days of testimony this week – Semi-annual Monetary Policy Report to Congress. The main topics are likely to be questioning over the timing of rate cuts and inflation progress.
- Other Fed speeches this week include Fed Gov. Waller giving opening remarks at the International Journal of Central Banking Conference. The full calendar of speaking events can be found here.
- BoE Governor Bailey will also provide testimony this week to the Lords Economic Affairs Committee.
- The EU leaders summit will take place this week on 26-27 Jun.
Canada CPI for May will be released this week. Firming inflation had been noted by the BoC as it held its policy settings unchanged at its last meeting. The fall in inflation in Apr was the result of a fall in energy prices from the removal of the consumer carbon price.
- Headline CPI is expected to rebound to +0.5% over the month, from -0.1% in Apr. Headline CPI is expected to increase from +1.7% in Apr.
- The BoC core measures of inflation are expected to stay elevated at +3.1% for the trimmed mean and +3.2% for the median rate.
S&P Prelim PMI’s for Jun will be released at the start of the week. This will provide some insight into growth momentum in the final month of Q2 amid the onset of the new trade and tariff regime.
This week, the US Treasury will auction and/or settle approx. $407bn in ST Bills and 2-year FRNs with a paydown of approx. $31bn. The US Treasury will also auction the 2-year, 5-year, and 7-year Notes this week – and will settle on 30 Jun, together with the 20-year Bond and 5-year TIPs.
QT this week: Approx $9.1bn of ST Bills will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
