Fed’s Daly: US labor market is strong. Not signaling weak point however suggests slowing

• US labor market is solid. Not signaling weakness suggests slowing.
• Inflation could be a one off and not materialize, or a small impact.
• Could look to begin adjust rates in autumn, and has been her view for some time
• The fall looks promising for a rate cut.
• Tariffs will boost inflation but it should dissipate
• Businesses are cautiously optimistic
• Very focused on getting inflation back down to 2%

The Fed is debating with the doves calling for a July cut as a possibility. Daly does not fall in that camp.

The rate decision in July is not until July 30. That gives time from the CPI and PPI which will be released on the 15th and 16th of July.

The most recent PCE data will be released tomorrow in the US. The next PCE data will not be released until AFTER the July 30 decision on July 31. However, the models are fairly good at estimating the data from the CPI and the PPI data. So there is a case that if the data shows the impact of the tariffs is not showing up, the Fed will have a big decision at the July meeting.

Tomorrow the May PCE is expected to show a modest 0.1% increase MoM and 2.6% YoY.

Fed Powell said in his testimony that he expects to see impacts from tariff in June, July and August data. By the July rate meeting, the only data will be from June which will muddy the rate decision waters – even if the impact from tariffs are still not felt.

Of course, there is still the postponed decisions on tariffs which have not been settled to date. With geopolitical tensions calmer, the markets will be looking for trade deals that will prevent reestablishing the tariffs. The WH said that they are expecting deals to be made before July 4.