The Fed holds rates steady as expected… two dissenters for the first time in decades… Louis Navellier is not happy… GDP accelerates… India gets hits with a hefty tariff… a strong ADP jobs report… last call for TradeSmith’s seasonality tool
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This afternoon, the Federal Reserve held the fed funds target rate steady at 4.25% – 4.50% as was widely expected.
Also expected – but highly unusual – were the dissents from Fed governors Christopher Waller and Michelle Bowman. This is the first time in more than three decades that two governors have dissented.
In Federal Reserve Chairman Jerome Powell’s live press conference, he played all his greatest hits: references to uncertainty… upcoming policy decisions being data dependent… the need to balance the dual mandate… and so on.
When asked if the agreed upon trade deals have provided enough data for the Fed to better forecast inflation, he hedged…
When asked about a cut in September, he demurred…
And when asked if tariffs have been in place long enough to see their impact, he waffled and said it’s “early days.”
Here’s a brief selection of what Powell was willing to say:
- Waller and Bowman will lay out their reasoning for dissent in the coming days
- We’re not seeing weakening in the labor market, but there is downside risk
- Private sector job openings are down but so too are job seekers – at least in part due to tighter immigration enforcement – so the labor market remains balanced
- The consumer is in good shape but is no longer spending rapidly
- The effects of tariffs on the consumer are not going to be zero
- The Fed will achieve its dual mandate of price stability and maximum employment – Powell just hopes they do it efficiently
Back to the big question – will September finally bring the next long-awaited rate cut?
The Fed Chair said it will come down to the “totality of the evidence” and that “we have made no decisions about September.”
Whether the Fed cuts or not, legendary investor Louis Navellier believes they should.
Let’s go to his Accelerated Profits Weekly Issue from yesterday (I’ll get to his response to today’s decision soon):
There are a few factors that should push a rate cut in September.
First, inflation has moderated.
Inflation has come in below economists’ consensus estimate for five consecutive months. So, Fed Chair Jerome Powell’s fears of the inflation bogeyman have been unfounded.
Building on Louis’ point, even if we do see a flare-up in prices, why are we to believe it would represent an ongoing price acceleration throughout the economy rather than a one-time price bump on select, tariff-affected goods?
We dug into this issue in our July 21 Digest. Put simply, price increases caused by tariffs are different in nature and origin from those driven by traditional inflation dynamics.
From that Digest:
A one-time tariff-based price increase doesn’t qualify as the kind of “inflation” that Powell & Co. are there to address through policy.
Tariff-based price changes don’t stem from an overheated economy or excessive money chasing limited goods. They happen once – then buyers either change their behavior (buying a non-tariffed brand) or they accept the new, static higher price for that specific good.
Either way, that new, tariff-impacted price doesn’t suddenly suffer from a new, higher inflation rate.
Theoretically, its inflation rate should be the same as it was prior to that one-time price bump.
Below is the visual we provided to illustrate.
One-time tariff-related price increases are on the left; the traditional inflation dynamic is on the right.
Now, because inflation has a huge psychological component, there is a risk: Consumers might see higher prices from tariffs, get confused about their origin, and then expect even higher prices to come, initiating the vicious inflation cycle.
This appears to be what Powell is concerned about – but that’s not happening today…
Consumer inflation expectations are falling
We have two recent pieces of data supporting this.
First, there’s the University of Michigan’s Consumer Sentiment Survey for July from two weeks ago, that showed tumbling inflation expectations.
From CNBC:
Consumers’ worst fears about tariff-induced inflation have receded…
The outlook at the one- and five-year horizons both tumbled, falling to their lowest levels since February, before President Donald Trump made his “liberation day” tariff announcement on April 2.
Second, there’s the Conference Board that reported more good news yesterday.
Here’s MarketWatch:
Consumer confidence rebounded modestly in July as Americans expected higher stock prices and easing inflation…
Their average 12-month inflation expectations eased slightly to 5.8% in July from a peak of 7% in April.
Yes, inflation expectations could flare back up, but the data tell us that – right now – they aren’t a problem.
Powell did address the difference between one‑time, pass-through inflation and ongoing inflation today
Here’s Powell from his press conference:
A reasonable base case is that the effects on inflation could be short‑lived, reflecting a one‑time shift in the price level.
But it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed.
While that sounds balanced, Powell’s subsequent comment (and refusal to cut rates) shows what he really feels – we’re at greater risk of persistent inflation.
Back to Powell:
Our obligation is to keep longer-term inflation expectations well-anchored, and to prevent a one-time increase in the price level from becoming an ongoing inflation problem.
The second reason that Louis believes the Fed should cut in September
Let’s return to his Accelerated Profits Weekly Issue:
Second, there’s a soft labor market…
Fed Governor Christopher Waller recently appeared on Bloomberg TV and laid out the case for why the Fed should cut key interest rates to support the labor market.
Specifically, Waller said the U.S. economy’s momentum has slowed significantly, and he expects it to “remain soft” for the rest of 2025.
We covered Waller’s speech here in the Digest.
Let’s go to his remarks for additional detail:
While the labor market looks fine on the surface, once we account for expected data revisions, private-sector payroll growth is near stall speed, and other data suggest that the downside risks to the labor market have increased.
With inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate.
For Louis’ third reason, he points toward falling global interest rates:
The Bank of England and European Central Bank both have continued to cut key interest rates this year and have a couple more rate cuts on the docket in the upcoming months…
As interest rates continue to collapse, economic data continues to soften and inflation remains tame, the Fed has no choice but to cut key interest rates.
So, what was Louis’ overall response to today’s Fed decision?
Less than enthused.
From Louis in today’s Accelerated Profits Flash Alert:
The Fed Lives in a delusional world.
They are saying that the economy is definitely weakened…but it’s not time to cut rates yet.
They’re arguing the labor department’s very strong…even though a lot of that was seasonal adjustments.
So, I think there’s a problem there.
Here’s what’s really going on, folks. The Fed lives in a delusional world.They’re not reading the data. Inflation has come in below economic expectations for five straight months.
Now, Louis did say that the Fed will be cutting rates in September. He expects a vocal minority opposing it, but they’ll cut.
Back to Louis:
The Fed has to cut six times.
So, they obviously have to start cutting in September, cut again in December and cut another four times next year. That’s what they have to do.
The federal funds rate has to get to 3%. I know Trump asked for 1%, but they have to get to 3%.
Futures traders aren’t so sure – at least for September…
As I write in the wake of today’s announcement, the CME Group’s FedWatch Tool shows that a cut in September is basically a coinflip.
As you can see below, while traders put 45% odds on a quarter-point cut, 55% odds go to holding rates steady – again.
What’s most fascinating is that just yesterday, those 55% odds clocked in at only 35.4% odds.
Clearly traders interpreted Powell as hawkish today.
So, plenty of big questions going forward. We’ll keep you updated as we hear more from Louis, the dissenting Fed governors, and Powell.
A tour through three additional big headlines today
The FOMC meeting wasn’t the only news of the day. We also got an updated GDP print, details of the new tariff on India, and the ADP jobs report.
Beginning with the economy, the Commerce Department’s advance estimate showed that U.S. real GDP grew at an annualized 3.0% pace last quarter. That’s a strong rebound from the ‑0.5% contraction in Q1 2025.
However, this upside surprise was driven largely by a sharp drop in imports as businesses front‑loaded inventories ahead of tariff hikes.
Zeroing in on consumers, while they’re not rolling over, neither are they out there spending up a storm.
Here’s Mark Zandi, chief economist at Moody’s Analytics:
You abstract from all of the tariff-related ups, downs and arounds, and the underlying story is that the economy is struggling. The economy has significantly throttled back this year…
Consumer spending was very strong coming out of the pandemic. But since December, it’s flatlined.
The American consumer may not be pulling back, but they are certainly sitting on their hands.
Let’s take this as a mixed win. GDP is strong but the most important driver – consumer spending – has fragile momentum.
Moving on to tariffs, President Trump announced via Truth Social that starting Friday (the August 1 deadline), a 25% tariff will be imposed on Indian exports.
As to why, Trump pointed toward trade imbalances, India’s high non‑monetary trade barriers, and its continued purchase of Russian weapons and energy.
Now, India isn’t a huge trading partner for the U.S., but the relationship is strategically important. So, the tariff seems to be more about geographic/political leverage given India’s trading relationship with Russia.
We’ll see whether this move ultimately strengthens relations with the U.S. or pushes India closer to the BRICS nations.
Finally, ADP reported that private-sector employers added 104,000 jobs in July. This was a sharp reversal from a revised 23,000-job loss in June and well above the forecast of about 75,000 jobs. It was also the largest monthly gain since March.
From ADP’s Chief Economist Dr. Nela Richardson:
Our hiring and pay data are broadly indicative of a healthy economy. Employers have grown more optimistic that consumers, the backbone of the economy, will remain resilient.
While we’re encouraged, what really matters is the official U.S. employment report on Friday. Forecasters are looking for growth of 100,000 jobs.
We’ll report back.
Finally, it’s last call to check out one of the most powerful quant-based trading tools on the market today
Last week, Keith Kaplan, CEO of our corporate partner, TradeSmith, and Louis hosted an online briefing to profile TradeSmith’s seasonality tool.
Here’s Keith with some background:
For the past three years, we’ve been developing software that can spot hidden seasonality patterns in the stock market.
The basic idea is that certain price trends repeat year after year, regardless – not unlike the nature’s seasons.
Stocks don’t have summers and winters exactly. But we’ve been able to identify consistent, repeating cycles in stocks, currencies, and even commodities like oil and soybeans…
These patterns are hard for humans to see. But our software reviews decades of market history for thousands of stocks, indexes, and commodities—to pinpoint the moments when prices tend to turn, down to the calendar day.
To give you an illustration of how it works, let’s look at the S&P.
The seasonality tool has flagged a major regime change – beginning now.
As you can see in the chart below, we’ve just wrapped up one of the tool’s green seasonal windows when the index has historically risen, year after year.
But I’ve circled what comes next…
Back to Keith for the details:
We have gotten a top around July 28. Then the market has stumbled before bottoming out in October.
Over the past 15 years, the S&P 500 has had an average return of -1.6%, falling as much as 15% during this window.
This doesn’t mean you need to get out of the market…
But it does suggest three responses:
- Be ready for pullbacks and don’t let them shake you out of your high-conviction, long-term positions
- Limit your bullish short-term trades to only those stocks that, historically, have shown they can climb during this historically weak season
- Get cash ready to plow into to your high-conviction holds when they near their seasonal lows in the upcoming months
The seasonality tool can be a huge help with all three action steps. To see how with Keith and Louis, click here to catch the free replay of their broadcast from last week. I’ll add that this is last call – the replay goes down tonight.
We’ll keep you updated on all these stories here in the Digest.
Have a good evening,
Jeff Remsburg
