We get CPI tomorrow.
But after the big jobs revisions earlier this month, the employment side of the Fed's mandate is becoming the focal point for the Fed.
Over the weekend, Fed Governor Bowman — who voted for a cut in July — said as much: "with underlying inflation on a sustained trajectory toward 2%, softness in aggregate demand, and signs of fragility in the labor market, I think we should focus on risks to our employment mandate."
That said, the consensus view on CPI tomorrow is for a slight uptick.
Given the events surrounding the Fed over the past month, if it comes in cooler, expect the (relative) inflation hawks at the Fed to start signaling the resumption of the easing cycle. One is on the calendar to speak tomorrow afternoon.
On the Fed chair search, it was reported today that the Trump team (led by Bessent) is widening the candidate list. Bowman was among those named. But also named were two Fed officials that are (relative) hawks. This looks like Bessent is taking the opportunity to use the interview process as an excuse to get one-on-ones with current and soon-to-be Fed voters. Smart.
Q2 earnings season is almost done. We headed into it with the market looking for 4.9% earnings growth. We're coming out north of 11%.
What about margins, in a world spooked by tariffs?
Profit margins broadly expanded, across the majority of sectors, at 12.8%. That's better than last quarter, better than the year ago quarter, and better than the 5-year average.
Add to that, we have pro-growth tax and industrial policy. We have regulatory relief in the Treasury market. We have a resumption of the easing cycle coming in this second half of the year. And the infrastructure buildout to support the technology revolution is just getting underway.
On the fiscal side, the tariff revenue is on a pace to reduce the budget deficit by 1 full percentage point.
And a full point cut in the Fed Funds rate, which would materially lower interest costs, would lower the deficit by another full percentage point — taking it to the low 4% area. The 50-year average is 3.7%.
So, we have a formula for higher growth, higher revenues and lower costs, which drives down debt-to-gdp.
The U.S. economic position, relative to the rest of the world is getting very strong.
That's pro-global capital inflows, pro-dollar assets.
