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Federal Reserve Chair Powell’s Jackson Hole speech left the door wide open for a September rate cut, but the Fed will have to traverse a range of data over the next month on both sides of its dual-mandate to be able to walk through it. While the odds of a rate cut next month are high, we aren’t yet convinced it is a slam dunk. There are three more inflation releases and a series of labor market data including August’s Nonfarm Payrolls that will likely continue to pull at both sides of the Fed’s dual-mandate. This “Stagflation Lite” environment will, in our view, continue to show slowing and below-trend growth coupled with uncomfortable and rising price pressures into year-end. Moreover, weighing on our minds even more than the Fed’s first cut of this new normalization chapter is (i) how many cuts in total this central bank will ultimately be able to deliver, and (ii) how effective monetary policy will be at supporting an economy that is seeing supply side shocks to both labor (America needs workers, not jobs) and inflation.

Getting all the focus this week will be July’s Personal Consumption Expenditure (PCE) deflator which lands Friday. That said, unlike the August CPI (9/11) and PPI (9/10) prints coming up, this week’s PCE is a July data point and won’t likely provide much new information for either central banks or market watchers relative to what we’ve already gleaned from other prices data in the past month. We are projecting a reasonable +0.28% m/m uptick in July’s core PCE , which should be some initial relief following July’s shocking Producer Price Prices surge of 0.9% m/m. But, problematically, it is still premature to dismiss tariff impacts on consumer prices at this stage, even if PCE is well behaved. As we’ve written about here , there will be a lag between tariff-driven producer prices and consumer prices and we don’t expect consumer prices to show more serious evidence of tariffs until late in Q3. More mechanically, medical care services prices have been largely flat, and the rise in airfares and securities commissions PPI has limited passthrough to PCE measures. RBC Economics continues to project a re-acceleration in inflation heading into end-20265and, importantly, only partly off of the back of tariffs: services inflation and technical (however flawed) calculations of Owner’s Equivalent Rent will keep inflation in a bad range. Put differently, the Fed won’t be getting much of a green light for cuts from inflation data in the coming months – the central bank will have to lean more heavily on slowing job markets if it wants to lower rates.

Other data to keep an eye on:

• Personal income and spending on Friday. Our forecast calls for a +0.5% m/m increase in personal income as both average hourly earnings and weekly hours worked rose in July. There are interesting compositional elements in play under income: government unemployment insurance payouts will rise as the labor market softens, and ongoing mass retirements continue to shift income further towards social security payments and Medicaid. Nominal personal spending will likely come in +0.4% m/m as we see a reversal of prior declines in durables (as inventory drawdowns progress). More broadly, we are monitoring for any signs of high-income consumer pullbacks and the dynamics between goods vs. services spending as consumers adjust spending patterns in the midst of trade disruptions.

• Jobless claims may get a little extra attention than typical this week both because last week was a moderate upside surprise, and because this week’s claims report is the core reference week for August’s nonfarm payrolls, which could turn out to be make or break on a September rate cut from the Federal Reserve. Also note the likely continued uptick in continuing claims, supportive of our view that the labor market data will continue to slow (not break) through to year-end. 

•  A slew of housing activity – new home sales, building permits, S&P Case Shiller Home Prices – continue to be worth keeping an eye on. The sector is in a serious growth slump, and a lost engine to the American economy right now.

• Durable goods orders may not be a typical market mover and is generally quite volatile, but the goods sector remains at the center of the tariff transmission mechanism. We see durable goods dropping -5% m/m in July, but that’s entirely a function of fewer aircraft orders.

• Finally, consumer confidence data – both from the Conference Board and from the University of Michigan – is on deck. These soft data points have been particularly poor predictors of activity, but we know the Federal Reserve is keeping a very close eye on a range of inflation expectations, some of which are embedded in these confidence surveys. Upside surprises in particular would matter.

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  About the Authors

  Frances Donald is the Chief Economist at RBC and oversees a team of leading professionals, who deliver economic analyses and insights to inform RBC clients around the globe. Frances is a key expert on economic issues and is highly sought after by clients, government leaders, policy makers, and media in the U.S. and Canada.

  Carrie Freestone is an economist and a member of the macroeconomic analysis group. She is responsible for examining key economic trends including consumer spending, labour markets, GDP, and inflation.

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