Whoever the White House pick might be to fill the vacant seat on the Board of Governors at the US Federal Reserve is not known yet, but the ever-bulls perceive more sway on the committee. Wishful expositions from the Administration would have, until a place on the board became available, been greeted with zero reaction, but not now. In an interview with Bloomberg, Scott Bessent, the US Treasury Secretary while talking on slowed job growth and what seems tolerable inflation said, "If we'd seen those numbers in May, in June, I suspect we could have had rate cuts in June and July. So that tells me that there's a very good chance of a 50 basis-point rate cut.” Starting from a lofty position anyway, the CME FedWatch tool is now pricing a twenty-five-basis point cut as all but a lock. The bourses of the world once again took off. The Nasdaq and S&P 500 joined the MSCI All-Country World Equity index and the Nikkei in making all-time highs, although the latter has faded due to a combination of higher interest rate talk and the Yen’s rise against a wilting US Dollar. The risk-on jamboree brings strength to Gold after its recent fall away from highs and there is emboldened crypto activity as Bitcoin also breaks ground not yet seen before.

It is telling on how markets have become so two-tiered that a ‘not so bad’ reading in the US July CPI reading causes much more reaction in equities than in the directly affected monetary markers such as bonds and indeed the US Dollar itself. US stock bourses are made fat on the self-indulgence of AI and technology stocks, and it remains amazing how even a such a paltry twenty-five basis point cut in September by the Federal Reserve is enough to keep the bull beast fed, even with a Scott Bessent interjection. ‘Presumption is the mother of all mistakes’, so the adage goes, but there does seem little reason to believe the FED will be so intransigent as to not follow its own lead on data. The almost spectacular miss in the recent Non-Farm Payrolls and with unemployment creeping from 4.1 percent in June to 4.2 percent in July, the job market does show signs of cooling. So too, are wages. Federal Reserve Bank of Atlanta data shows that in June, growth in the three-month average of wages was 4.2 percent, being in line with the same moving average since November of last year. Even if Jerome Powell, in an unlikely fit of churlishness outside of his professional demeanour, wanted to ‘stick it to the man’ by influencing the FOMC into holding rates again in September, he would be hard-pressed for reasons why and indeed would defy some of his maxims of employment and personal inflation. This then sees the nailed-on pricing from the CME FedWatch tool of a 99 percent chance of a quarter-point cut at the FOMC meeting in September.

The bond market remains unconvinced. Notwithstanding the massive budget deficit which will forever be a thorn in the side of US treasuries, anything that might spur inflation will send jitters through the community that forms the backstop buying of US debt. As it is, and according to Bloomberg Research, two-year CPI swaps are pricing higher than the current rate giving an insight into where the bond Gods of Wall Street fancy the future plight of prices in the US. Wherever one looks, any piece of data is paired with tariff-related concerns. Voices from clothing, furniture and electronic companies expect increased import costs to eventually migrate into the public domain. The US Administration is at pains to sell any inflation scenario as a transitory one. The context of a Trump post that it is “mostly companies and governments, many of them foreign, picking up the tabs,” was one aimed at economists stating tariff cost will eventually be borne by the public, but it is nonetheless the official line the White House wishes all to swallow. The US President levelled particular criticism upon Goldman Sachs after the bank opined US consumers having absorbed 22 percent of tariff costs through June and their share will rise to 67 percent if the recent levies follow the same pattern as the earliest ones.

Where this becomes thoroughly fascinating for our market is the reading of the US Core CPI. The core data takes out volatile food and energy prices but still managed to rise by 0.3 percent despite oil prices not being represented. Reverting to the main inflation reading, the main protagonists keeping prices squeezed were medical services up 0.8 percent, airline fares up 4 percent, and housing up 0.2 percent, the overall reading of 2.7 percent would then have been a lot higher if it were not for Gasoline offsetting the rise by falling some 2.2 percent. Envisage then a playing out of most economists’ vision of tariff-related inflation being passed by manufacturers and all purveyors of goods and services onto the retail economy. How on earth can the US consumer then bear any hugely inflationary rising energy costs? The inflation readings, their sensitivity to higher oil prices must stay any action that might cause such a hike.

It should not be forgotten that Donald Trump is a politician, despite the labelling of him being a binary deal maker only. He adjusts his identity according to the audience and this was seen yesterday when he reassured Ukraine and Europe that he was not about to give the farm away when meeting with President Putin in Anchorage. Promising “severe consequences” if Russia shirks on a ceasefire and that Volodymyr Zelensky would be involved in a follow-up meeting if the first goes well, he is now left alone to carry the torch of peace. If we accept Trump as a politician, we accept that he is very much aware of the emotiveness of oil prices within his own electorate. Do “severe consequences” mean Russia’s oil is about to be taken from the market? We are doubtful, and smell a fudge, one that can be added to or backed away from by both sides. Despite the bravado of holding all the cards, Mr Trump does not. The US CPI reading and the public fallout between Trump and economists is manna from heaven for Vladimir Putin going into the Alaska pow-wow on Friday. Anything that causes oil prices to rise from policy such as secondary tariffs is almost an own goal against this administration and the man from Moscow knows it.

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