Fed Commentary
Chicago Fed President Austan Goolsbee noted that he had been fairly comfortable with this year’s inflation reports—until the latest PPI release showed services inflation rising 1.1%. While he cautioned against overreacting to a single CPI or PPI print, he made it clear that the Fed will be watching closely for trends. If inflation readings continue to soften, Goolsbee believes the right move would be to start cutting rates.
On the labor front, he highlighted the challenge of relying on headline job creation numbers given immigration-related population shifts. Instead, he’s placing more weight on ratios like the unemployment rate. The last three jobs reports—19k, 14k, and 73k—point to notable weakness, and household survey data shows 863k job losses over the past three months. Even with a shrinking labor force, those numbers are hard to ignore, especially as unemployment edges toward 4.3%.
St. Louis Fed President Alberto Musalem added that labor market risks are increasing, while the persistence of recent inflation pressures appears limited. He expects the tariff impact to fade within two to three quarters. Importantly, he did not commit to a September cut and pushed back on the idea of a 50bp move, calling it unjustified in the current environment.
Richmond Fed President Thomas Barkin echoed the Fed’s dilemma—risks exist on both sides, with inflation and unemployment showing potential to rise. The balance is still unclear.
Retail Sales
July retail sales rose 0.5%, slightly below expectations, though June’s numbers were revised higher. Core Retail Sales, which feed directly into GDP, also rose 0.5%—a bit stronger than anticipated—with upward revisions as well. Overall, consumers continue to spend, even with tariffs making the true impact harder to quantify.
Industrial Production & Capacity Utilization
Industrial Production dipped -0.1% in July, missing expectations, while Capacity Utilization ticked lower to 77.5%. This trend shows factories are operating below capacity, which reduces pricing power and often pushes producers to cut prices—making this report somewhat deflationary.
Crestone’s Takeaway
The Fed continues to weigh conflicting signals: softening labor data, sticky but moderating inflation, and resilient consumer spending. For housing and mortgage markets, the combination of cooling jobs and potential Fed cuts could create downward pressure on rates. That said, the Fed is still signaling caution, meaning markets may need more confirmation before a clear rate-cut path emerges.