Back at It!

This week, we discuss the latest inflation data, the jobs report, Treasury Secretary Scott Bessent's bond buybacks, and the Federal Reserve minutes. July CPI came in below expectations, although much of the relief once again reflected energy prices. With that support likely to fade, we expect inflation to move higher in August. The labor market offered less cause for optimism. Headline payroll growth fell well short of expectations, reinforcing the weakness we have highlighted in recent months. More strikingly, the labor force participation rate continues to fall sharply as retiring Baby Boomers and discouraged workers leave the labor force. The Treasury, meanwhile, announced plans to buy back longer dated Treasury bonds in an effort to reduce long term interest rates, which have pushed up borrowing costs across the economy, from mortgages to data centers. We are skeptical that the program will have much effect. Bond yields initially fell following the announcement, only to rebound this week to near their recent highs. Finally, the Fed minutes revealed that a majority of FOMC members would favor raising rates if inflation remains elevated. They also exposed a widening divide between Chair Warsh and the rest of the Committee, raising questions about how much influence the new Chair can exert over the direction of monetary policy.