Fed Watch – 8/15/2025

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

Hi, I’m Lauren Saidel-Baker, and thank you so much for joining me for this August 15th edition of Fed Watch.

It’s been a heavy data week. In fact, I was in New York for some in-person interviews this week, and it was fascinating to hear when I was talking to these reporters and these anchors, the one thing they all told me is that I sounded like an optimist. Now, that caught me by surprise because we at ITR Economics, we’re not optimistic or pessimistic. We are economists. We’re looking at the real data here. We don’t have a skew or a slant to any of this analysis. So I was a little bit caught off guard. But what it comes down to is the fact that we do have a slightly more bullish than consensus view of the economic outlook going forward.

So I want to drill into that, especially as it relates to the data we got this week, notably the CPI, PPI, and retail sales data. At the end of the day, CPI and PPI, one came in ahead of consensus, one came in slightly behind. There’s no big movement there. Generally, we’re still seeing these inflationary pressures build. We’re starting to get those signs of life, those signs of pickup, and either way, however you slice the data, consumer price inflation is above that Fed 2% target.

Now, we can dissect what’s happening beneath the surface with regards to inflation. Is it tariff-driven? We at ITR believe that it will take between 9 and 18 months for tariff impacts to really flow through to pricing levels. But we’re starting to see on the more microeconomic basis some of those tariff impacts coming through. Much more to be decided on that point.

But just today, just this morning, we got the retail sales data, and that showed that the consumer is still hanging in there. You’ll see some frothy headlines, cherry-picking data, right? Showing just how much, say, autos were ahead or not. At the end of the day, this retail sales figure, very seasonally normal, very much as we had been expecting this trend to come in, and it supports that view that the consumer isn’t dead yet. They are hanging in there. This relatively tight labor market is giving them the support they need. And at the end of the day, if we aren’t earning more, we still can tap into things like additional debt to finance all of that spending. Our consumer loves to spend money. We are not seeing that pullback, that contraction, that belt tightening yet, however much our consumer likes to talk about or complain about prices on store shelves.

So as this all regards the Fed, FedSpeak this week came out very much with a more dovish tone. We’re even hearing some governors talk about three rate cuts this year or 75 basis points of interest rate cuts throughout the fall. We might see that. I think at this point, the odds are overwhelming that we’ll see some movement in the September meeting, probably 25 basis points. Maybe we get another 25, maybe even another 50 at some point this year. But my question to you is, does that really move the needle? If you are waiting to time the low of the cycle, are you forgoing other opportunities? We are not going to see significant movement downward in rates, I think, before we see significant movement upward.

So the general path of rates over the medium term, it is still one of higher interest rates. We might see some dips and bumps along the road to get there. But this is not a wholesale change to the interest rate outlook that we have here at ITR.

So we will be watching. There is more data to come. Another round of jobs numbers, another round of inflation data before we get that critical September meeting. We’ll be unpacking it all right here. Stay with us on ITR Economics Fed Watch. We’ll see you next time.