Fed Watch – 7/18/2025

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hello, thanks for joining us for the July 18th, 2025 edition of FedWatch. I’m Brian Beaulieu of ITR Economics, and the Redbook weekly data shows that retail sales are holding up well, going through the first week of July. That’s encouraging. The Dallas weekly economic indicator is improved over the last week, and therefore, continuing to show the economy is growing, chalk it up for the economy. That’s not going to do Chairman Powell any good in terms of avoiding the ire of Washington.

What may help him is that automobile retail sales, and I put this in on LinkedIn after last week’s Fed Watch. They were awful in June. Domestically produced automobiles were down 18% from a year ago, and foreign produced were down 30.2%. I mean, it was just a bloodbath. It’s the steepest one month decline for domestically produced from May to June in 60 years. We have 50 years with the foreign data, and it’s the steepest we’ve seen in half a century on the foreign side.

But this is kind of what I was, I wrote a blog yesterday, and it’ll be out, ITR will be putting it out, and the Fed can lower interest rates all at once, and that’ll lower the prime rate, which will help with the delinquency rate. But this year looks like it’s going to be a relatively tough year for this industry. There’s other factors going on. Read the blog if you want to read more about it.

Inflation came out this week, and it’s not going to do anything but get the Fed a little bit heartburn. Also, the All Items Index was up to 2.7%. That’s not where they wanted it to be going. Food, and this is important one, food is at 3.0% and back into phase B, which means that number is beginning to creep up again. And that’s not going to make people feel real good, but it puts the Fed into a conundrum. What are they going to do about it?

Electricity. And we’ve been talking about electricity prices going up. It was a 5.8% increase from one year ago for consumers. That’s a big increase. This is a net that they can’t really avoid. They can turn off light bulbs, but that doesn’t do a whole lot of good. And it’s the record high kilowatt hours. So these are stiff increases at record highs. This makes us concerned about discretionary income. And that’s why we’re going to dig further into discretionary income, if we can find the data, for our July 29th Uncertainty webinar.

Gas prices for utility gas going into residences at 14.2%. Again, we got to know how much this is impinging people’s abilities to go to restaurants, certainly. We’re seeing it in vacation data. Core inflation is at 2.9%. That notched a gain from 2.8%. And the labor intensive measures of consumer price index, like vehicle maintenance and repair, continue to show resiliency at 5.2%. PPI was kind of blase at 1.9%, which is good news. But that’s not where we expect to see a lot of the tariff activity showing up. So we’ll keep a close eye on all of that.

Retail sales for June were up 3.7% from one year ago. It’s better than the rate of inflation. It’s not stellar growth, but it is growth. And we’ll take that. US industrial production data came out, and I was pleased with it, actually. I’m excited about it because the raw data for June came in at its highest level in 81 months. That’s six and three quarter years. And that means we’re at the highest level we’ve seen since pre-COVID. That’s significant. This is manufacturing, mining, and utilities. And this is an important part of our economy, and it is showing some steadfastness.

Housing starts for single-family homes. Again, it’s going to create all sorts of different headlines from our perspective. It was good data. The 12/12 remains in phase A, it is at minus 2.6%, so the 12 month-moving-totals running below year ago levels. Boo-hoo. But on the other side of it, we have May-June change came in at plus 6.3%, which is above normal. And the 1/12 is only at minus 0.3%. So we recouped a lot of May’s weakness. We’re almost even with the year of the levels.  A positive checking point remains in place. I don’t see housing as a raison d’etre for lowering interest rates, but it doesn’t mean that it isn’t going to happen.

The marketplace doesn’t seem to be anticipating interest rate decline. I know FedWatch, the CME FedWatch, is still calling for interest rate decline, but it’s not showing up in what’s going on for mortgage rates. It’s not showing up at all in what’s going on in the marketplace for 10-year government bond yield. Those are essentially flat. We’d normally be seeing some indication of weakness in either of those two measures if we were going to see the Federal Reserve come down with their Fed funds rate. So there remains to be seen whether it happens or not.

Final thought, from our perspective, in the economic policy perspective, the Federal Reserve must be allowed to continue as an independent entity. If the Federal Reserve has to bow to the whims of the politicians. Interest rates will, of course, go lower. That will be great for developers. People will heap praise about lower interest rates, but it will tie directly in with seeing even more inflation than ITR is forecasting.  And it will put the final explanation point when they look back and say, why did the depression happen? There’s your number one easily seen reason why because that inflation is going to exacerbate the already imminent rising trend in interest rates.

We don’t want to see that happen, folks. It’s only going to make the future worse while it maybe make the future better. But that tends to be the way the world works these days, right? Thanks for watching this week’s Fed Watch. We’ll see you next week.