The Federal Reserve held interest rates at 4.25-4.5% at Wednesday’s meeting, as expected. However, for the first time in many years, two of the Fed’s twelve governors — Christopher Waller and Michelle Bowman — voted against the decision, advocating instead for a 25-basis-point cut to Donald Trump’s happiness.

The reasoning hasn’t changed much: the U.S. economy is doing okay overall, whereas inflation risks are still a concern, especially with trade tensions heating up. For instance, the June Personal Consumption Expenditure (PCE) report showed that tariffs are starting to have a bigger impact on consumer prices.

To be more precise, headline inflation increased by 0.3% Month over Month and sped up to 2.6% year over year. Core inflation bounced back, too, hitting 0.3% Month over Month and 2.8% year over year. No wonder doubts emerged about whether the Fed might cut rates in September and wait until October.

By Friday, however, the picture had changed completely following new labor market data: unexpectedly, 258,000 jobs disappeared in May and June, mainly due to uncertainty around tariffs. Markets subsequently reacted, with the dollar index, Treasury yields, and S&P 500 falling and gold prices rising.

So, we have the following picture: inflationary pressures remain due to Trump’s high tariffs, but the labor market seems to be struggling. Against this backdrop, markets are betting on a rate cut in September, but whether that happens will largely depend on upcoming data, especially from the labor market.

In this context, this week’s key events for US markets include the weekly jobless claims report. It is also worth keeping an eye on what Fed officials say — Daly will speak on Wednesday, and Bostic and Musalem will speak on Friday. A shift toward dovish rhetoric will subsequently turn into increased market volatility.

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