July Flash PMI Findings Bolster Powell's Stance Against Trump
Ahead of potentially renewed sparks between the president and Fed Chair, it’s hard to argue the central bank needs to cut rates.
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When President Trump visits the Fed this afternoon, based on what we saw in the July Flash PMI data, his call for the central bank to deliver big rate cuts is likely to fall on deaf ears. We say that because the report showed the economy accelerated in July compared to prior months, employment trended higher as companies contended with rising backlogs of work, and pricing pressure intensified in both the manufacturing and service sectors. Based on the report’s findings, S&P’s view is that is consistent with a GDP figure of 2.3%, a quicker pace than its 1.3% reading for Q2 2025.
When we look at that pace as well as continued job gains that point to the largest gain in payroll numbers since January for the service sector, it’s hard to argue the Fed needs to cut rates. Adding to that argument, the report continues to link renewed inflation pressures to tariffs and, in some cases, to higher labor costs:
"Close to two-thirds of all manufacturers reporting higher input costs attributed these to tariffs, whilst just under half of the respondents explicitly linked their increased selling prices to tariffs. However, the tariff impact was by no means limited to factories, as around 40% of service providers reporting higher selling prices explicitly mentioned tariffs."
You’ll recall that is what Fed Chair Jerome Powell said the Fed would be watching during his June policy press conference. While the June PPI figures surprised to the downside, the continued pressure being reported in the manufacturing and service PMI data suggests companies are only going to swallow inflation pressures for so long lest they sacrifice their margins and bottom-line prospects.
This has us bracing for another round of potential Trump-Powell headlines late today. Should Trump signal he is once again likely to replace Powell near-term, that would be a fresh blow of uncertainty for the market. As we prepare for the outcome of the president's visit, we can’t help but notice the Volatility Index is back near 15 and the Fear & Greed Index has returned to “Extreme Greed.”
