Financial News for the Week of August 15th, 2025

It has been one week since the full complement of reciprocal tariff policies went into effect. Those tariffs will not have an influence on the economic data for a few months, but the tariffs that prevailed through the first half of the year continued to show up in the July inflation readings released this week. This included the CPI and PPI, both of which showed signs of rising price pressures that are expected to trend higher over the coming months with the new tranche of tariffs now in effect. Largely undeterred, equity markets continued to probe record highs, with the S&P 500 rising 1.0% on the week and notching a double digit return year-to-date (Chart 1).

The first inflation report we received on Tuesday showed consumer price growth accelerating in July, with the annual percentage change in core CPI rising above 3% for the first time since February. This was driven by stronger core goods prices, largely related to higher tariff passthrough, while core services inflation also trended higher (Chart 2). Producer prices, which we received on Thursday and measure the prices charged by U.S. businesses, also began to trend notably higher in July with the monthly change hitting a 3-year high. This likely suggests that businesses are shifting to pass on more of the higher costs associated with tariffs to consumers after largely absorbing the costs in the first half of the year. Moving forward, with the effective U.S. tariff rate nearly 10 percentage-points higher after last week’s reciprocal tariffs came into force, inflationary pressures are expected to remain elevated through the second half of the year.

The Federal Reserve has been acutely attuned to these developments, with the central bank remaining on hold since the start of the year. Although a few Federal Reserve officials have advocated for rate reductions, the balance of the FOMC continues to voice caution regarding the uncertainty surrounding the outlook for inflation and the economy. The officials we heard from this week, including regional Fed presidents Schmid (Kansas City) and Goolsbee (Chicago) who are voting members of the FOMC this year, noted that caution was still warranted. Market pricing fluctuated this week, but currently has 90% odds for a rate cut in September. The annual Jackson Hole Symposium next week will be watched closely after this week’s inflation reports for any signs on the leanings of officials in the run-up to the next Federal Reserve decision in one month.

On a more positive note, retail spending appeared to remain healthy in July, growing 0.5% month-on-month. However, July also had Amazon’s multi-day Prime day event which tends to boost sales activity. A non-outsized reading could suggest that consumption is beginning to slow in line with the downward revisions to the labor market recorded in the second quarter. This is part of the reason why Federal Reserve officials have continued to advocate for caution, noting that it will take time to properly assess the state of the U.S. economy amid the fog of various shifts in trade policy.

Next week, we’ll receive the FOMC meeting minutes for July as well as the July reading for PCE inflation which should help formulate expectations for September’s Fed meeting. With trade policy uncertainty waning gradually, the attention of markets will shift back towards the Fed.