Fed Watch – 7/17/2026

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

Weakened inflation numbers, but does this mean that interest rate cuts are back on the table? Thank you so much for joining us for this July 17th edition of Fed Watch. I’m Lauren Saidel-Baker. And it has been a big week for the numbers, but let’s cut through some of those headlines, both with the Consumer Price Index and the Producer Price Index. I know you’ve been seeing those big beats, the much lower than expected inflation. I really want to dig in. And first of all, let me be clear. The data that came out this week were very much in line with our ITR forecast.

So we’ll start with the CPI, the consumer price index, actuals trending right in line with our expectations. The big story here on both sides of the equation, consumer prices and producer prices, it’s been oil prices. Now keep in mind, the data that we got, that was data through June. So whether we are back on again or off again with the war with Iran, with the straight being closed, with additional taxes being imposed or fees or tolls, these inflation numbers are somewhat backward looking.  These are only through June when we did have a relative respite in oil prices. So the collapse in June, that led the CPI for energy to have its worst ever month to month change in June in the 47 year history of that data set. For the overall consumer price index, that month to month change was actually the weakest since the 1930s. So please let me say this, I’ve said it before, I’ll say it again. Know that one month of data does not make a trend. What we’re looking at here with inflation, it has to be on the broader scale, that more holistic picture. And as far as that goes, things are really developing as we have been expecting.

Oil and energy prices are distorting what you’re seeing in the headline numbers. And that makes sense. The news loves to latch on to these immediate trends to those quicker turns that can be reversed if say this week we get some negative news out of talks with Iran, out of the White House, some more maybe aggressive posturing. We’ve seen in the more recent and post June numbers, just what that did to oil and energy prices. Overall, consumer price inflation is still elevated to be clear, but it’s not the runaway freight train that we maybe saw a little bit more fear of when the straight did close initially. So the focus for businesses on the consumer price index, especially if you are in the B2C side, is that you need to know your relative segment of the consumer price index or just what inflation is affecting your customers and what they’re going to be accepting of. We can break down the CPI in several different ways. CPI for shelter, that’s the largest individual wedge of this pie. That came in about 3.3%. It’s really been in that 3 to 3.5% range since late 2025. CPI for services, excluding shelter, that’s actually down a bit to 3.1%. But again, you’re hearing me say 3% range, not two, not exactly where the Fed wants inflation to be. Food inflation, that’s been, again, slightly elevated right around that 3% range.

It’s been in the roughly, we’ll call it 2.6 to 3.2% range for more than a year now. Energy, we address that above. If you are in the energy sector, if your customers are more sensitive to those costs, you know that you have a little bit more volatility happening here month to month. Overall, though, as we look at how this offsets with wages, starting to get some, I don’t want to call them red flags, but maybe orange, yellow flags starting to wave, just in terms of how much wage and salary growth is insulating from the consumer from all of these inflationary trends. Right now, they still can contend with the type of inflation that we’re seeing, given the rise in nominal wages, however, this is getting increasingly uncomfortable for consumers. So expect headlines like we saw from the CPI this week to start to maybe hear some rumblings, right? Feel those little bit of pushback, especially from that lower leg of the K-shaped economy, as we have been talking about very much in the past. These pressures are building. They will continue to build. That’s nothing acute today, but something that we do need to be aware of over the longer term, and especially as we’re headed toward the end of this decade.

Now, I’ll turn very briefly to the PPI, the Producer Price Index, that also came out this week for June. Again, very similar trend here with regards to oil being the main driver in that slightly lower than expected PPI read. The goods side of the PPI, about two-thirds of the decrease was driven by gas prices. However, if we take out alternate segments of the PPI specifically, excuse me, the services prices, those are still rising. So these inflation drivers that you’re probably feeling from your cost inputs, those are going to be more pervasive. Those are going to be more consistent. Unless you’re buying gas out there on the spot market, you’re probably feeling things like wage pressures a little bit more acutely, and those trends are not going away and certainly not reversing month to month.

So where does all of this inflation come into the Fed? Well, we actually got some good testimony from new Fed Chair, Kevin Warsh, before the House on Tuesday, the Senate Bank Committee on Wednesday. And he had a lot to say about inflation, some of which I think gave markets pause that we could be expecting this much more dovish individual to really live up to that dovishness. He certainly maintained his view that inflation needs to be brought under control. He said, I believe it was on Wednesday, so on Tuesday in front of the House, he said that these latest inflation numbers, quote, did not represent mission accomplished for inflation. So he’s still very focused on that side of the dual mandate, as we have seen other members of the Fed Committee remain very focused on pricing, especially with regards to a relatively stable labor market at the moment.

So on balance, we are still looking probably for that next rate move to be up, not down. News and testimony this week did not change that forecast, nothing happening immediately. But let’s watch the incoming, especially PC numbers that will be out later this month.  Unfortunately, I won’t be there to watch them with you. I’m headed out on maternity leave next week, but you’re going to be in very good hands. My colleague, Senior Forecaster, Connor Lokar will be filling in on Fed Watch for me while I’m out. He’ll be unpacking those numbers and so much more. We hope you’ll stick right here with us on ITR Economics, Fed Watch.