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Woes and Whoas: Fallout From the July FOMC
Manage episode 498250686 series 2815319
In this week's episode, we discuss eight reports and news items that are impacting the economy today, and which will likely have lingering effects into the future; these touch on the labor market in regard to unemployment and payrolls, housing, inflation, Gross Domestic Product (GDP), earnings season, and – the big news of the week – what came out of the Federal Open Market Committee (FOMC) meeting and the lower than expected new non-farm payroll report. As always, we analyze these items and how they’re affecting the equity and bond markets, and what moves investors may consider making.
Speakers:
Brian Pietrangelo, Managing Director of Investment Strategy
George Mateyo, Chief Investment Officer
Stephen Hoedt, Head of Equities
Rajeev Sharma, Managing Director of Fixed Income
Cynthia Honcharenko, Director of Fixed Income Portfolio Management
01:47 – We introduce the eight topics and reports that lay the groundwork for our discussion: weekly initial unemployment claims, job openings, existing home sales, GDP for Q2:2025, the Personal Consumption Expenditures (PCE) inflation figures, the jobs report showing underwhelming numbers for new nonfarm payrolls, a negative revision for the May and June figures, and a slight bump in overall unemployment, the FOMC meeting, and news from the midst of earning season.
06:30 – The big items from the FOMC: rates remain unchanged, two governors voice dissent, and no firm commitment on a September rate cut. The reasoning behind the continued fed funds rate is that inflation is still elevated, the labor market is robust, unemployment remains low, and inflationary pressures persist due to trade uncertainties.
07:42 – Fed Chair Jerome Powell touched on 7 themes during the post-meeting press conference: no rate cuts, monetary policy is restrictive, pressure from tariffs, conflicting pressures between inflation and the labor market, market pricing recalibration, Fed independence in rate setting in light of government borrowing costs, and acknowledging the notable dual dissents within the FOMC meeting.
09:35 – The likelihood of a September rate cut dropped to 39% at the time of the FOMC meeting, with a fourth quarter cut more likely. The dissent from governors Christopher Waller and Michelle Bowman seems less politically motivated than borne out of genuine care for the labor market.
12:38 – The labor market is stable but might be starting to show some cracks signaling a potential slowdown as layoffs are low but so is hiring.
17:01 – The 2-year Treasury yield, which is most sensitive to Fed policy, rose slightly following the FOMC meeting on Wednesday, then dropped significantly today in reaction to this morning’s jobs report – the biggest such reaction since 2004. Given this volatility, expectations of a September rate cut are now increasing.
20:07 – Shifting tariffs and trade policy seem to be hitting the stock market this week, with falling copper futures as a notable example.
21:16 – The Trump administration’s recent pushback against Powell’s wait-and-see approach to rate cuts appears prescient given the market reaction to today’s lukewarm jobs report. There’s now a higher chance of a Powell resignation as a Fed governor rather than finishing out his full term, after a potential replacement as the sitting Fed Chair.
24:14 – As earnings season continues, major tech companies are showing mixed results, with Microsoft and Meta reporting favorably in contrast to lackluster reports from Amazon and Apple.
Additional Resources
Read: What Are the Top 10 Provisions in the “One Big Beautiful Bill Act” That Will Impact Businesses?
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