Dear valued client,
Markets closed out their best-performing week of the year as encouraging inflation data was released. The U.S. CPI came in at 2.9% in July (compared to 3% in June and 3.3% in May). This provides the Fed with ample evidence that price increases are waning and virtually guaranteeing a rate cut in September. The question now is whether the Fed will opt for a 25 or 50-basis point reduction. The final decision may hinge on the upcoming August labor market report. Regardless of its size, the cut is expected to bolster markets, with quite a bit of volatility expected as well leading up to the November presidential election.
This week’s strong retail sales reported the largest increase in 18 months, indicating the U.S. consumer is in decent shape. However, the decline in manufacturing production, largely due to temporary factors like motor vehicle plant shutdowns and disruptions from Hurricane Beryl, slightly dampened the positive outlook. While markets price in an interest rate cut by the Federal Reserve in September, the overall economic indicators suggest the U.S. is on track to avoid an imminent recession, with consumer spending and GDP growth remaining robust.
Elon Musk held a discussion on X Spaces with Donald Trump where they covered topics including the economy, energy, inflation, education, nuclear war, and illegal immigration. Trump claimed that other countries are sending criminals to the U.S. and suggested that the wars in Gaza and Ukraine would not have occurred if he were president. Musk noted that dictators might fear Trump; a deterrent from instigating more chaos on the global geopolitical stage. The conversation was marred by technical glitches, which Musk attributed to a deliberate attack on the system. Before the discussion, Trump posted on X for the first time in nearly a year, and the European Union warned Musk about spreading inaccurate information or inciting violence on the platform.
Vice President Kamala Harris is following Trump’s lead in pledging to eliminate taxes on tips for hospitality workers if elected, a policy aimed at winning over service workers in swing states like Nevada. This proposal, which appeals to a state with a high concentration of tipped workers, has drawn criticism from economists who argue that it would mostly benefit high-end restaurant servers and could reduce federal revenue by $150 billion to $250 billion. Additionally, the policy could lead to complex accounting challenges and detract from efforts to raise the minimum wage for tipped workers. While the promise may resonate with voters, any changes to federal taxes would require congressional approval.
“Set for yourself goals, high and noble goals, and perish in pursuit of them! I know of no better life purpose than to perish in pursuing the great and the impossible.” – Friedrich Nietzsche
Have a terrific weekend,
PW
