From Rate Cuts to Trade Deals - A Week of Shifting Dynamics

The Fed left open the possibility of a rate cut in September, with Jerome Powell warning of a deterioration in the labor market following July data that showed weaker-than-expected hiring. While emphasizing that monetary policy remains restrictive, Powell noted that the Fed could act if risks tilt toward employment. However, he warned that the Trump administration's new tariffs pose an additional inflation risk, requiring caution. The July minutes reflected this tension, with most members supporting keeping the rate at 4.25%–4.50%, while only two favored a 25-bps cut to cushion labor weakness.

The housing market presented mixed data. Building permits fell 2.8% month-on-month in July, reaching 1.354 million and hitting their lowest level since June 2020, reflecting some caution in new investments. However, housing starts rebounded by 5.2% to 1.428 million, the highest level in five months, suggesting that some of the pent-up activity is being reactivated. In addition, existing home sales rose by 2% to 4.01 million, exceeding expectations and marking their largest increase since February, pointing to greater momentum in the secondary market.

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