It was an encouraging week for financial data in the US, with inflation showing signs of containment and the consumer climate recovering for the first time this year.
The labor market remains generally stable, with the unemployment rate being maintained at 4.2%, although the recent increase in ongoing unemployment benefits indicates some signs of retreat.

Overall, the scene seems to favor the federal bank’s course towards the relaxation of monetary policy.

However, Wall Street analysts argue that policy makers may need more information before proceeding with any cuts.

“We do not really know how to evolve in the second half of the year,” said Loretta Meter, a former Cleveland Fed president, in Yahoo Finance.

Meter added that although basic financial data, such as recent work and inflation reports, were encouraging, “the real question is what will happen in the second half of the year and [αν] These trends continue. There is still the high level of uncertainty. “

Uncertainty from Trump duties

Uncertainty focuses on the range and scale of President Trump’s duties following his announcements on “Release Day” in April, which shocked markets and businesses.

Since then, many of these duties have been suspended, but the main duties 10% for most countries remain in force.

Meanwhile, Mexico and Canada are still facing fentanyl duties, and steel, aluminum and cars remain unchanged.

Earlier this week, the US and China have agreed to a framework and an application plan aimed at alleviating tariff and commercial tensions.
President Trump gave the slogan of his approval, saying that the deal was “completed”, pending the final approval by himself and Chinese President Xi Jing.

“The Fed expects until we have a little more clarity not only about the size and range of duties, but also on their inflation,” Metter said.

Standby

Despite the warnings, markets are increasingly confident that interest rates are on the horizon, with almost 70% now betting that the Fed will start relaxation in September, from 60% a week ago.

Investors bet about 25% chance that the first decline will come from July, according to CME Fed forecasts.

However, markets predict that the Fed will maintain interest rates at next week’s policy meeting.

Brent Schutte, head of investment strategy at Northwestern Mutual Wealth Management, also warned that the threat of inflation has not disappeared, especially with the impact of duties remaining uncertain.

He added that the Fed is in a “waiting period”.

“I don’t think the Fed will reduce invoices by September, unless you see significant weakening in the job market,” he added.

HSBC US economist Ryan Wang pointed out the “double dangers” posed by duties, noting that while the prices of goods would probably continue to grow over the rest of the year, the first signs of a cooling market could help to compensate for it.

But while markets may bet on a smooth path towards the reductions, Wang warned that the Fed would need further evidence that inflation is not increasing in a “uncontrolled way” and that activity in the wider economy does not retreat very quickly.

At present, the Fed seems to follow in a waiting attitude – recognizing the encouraging data, but is not yet convinced that it is time to change course.