Macro week ahead: US inflation expected to edge up as Powell tilts toward jobs

Markets are bracing for Friday’s core PCE report, the Fed’s North Star when it comes to inflation. Forecasts point to a 2.9% y/y print in July, the fastest in five months, with another +0.3% monthly gain. It’s not a wildfire, but it’s not cooling embers either — more like a steady flame creeping up the runway lights just as Powell signals he’s preparing the landing gear.

At Jackson Hole, Powell finally shifted tone. He acknowledged that the Fed’s dual mandate has tilted: inflation remains sticky, but the real crack in the fuselage is jobs. In his words, tariffs are clearly lifting prices, but he waved them off as turbulence that should pass quickly. What traders heard instead: Powell is ready to prioritize stabilizing the labor market even if the inflation dials flicker higher. That was the opening markets were waiting for — a chair who’s willing to trade altitude on inflation vigilance for lift in employment.

This week, every Fed voice becomes part of the flight crew. Waller, Williams, Logan, Barkin — each could subtly steer market expectations. The path toward a September cut is already charted in futures, but the real risk is if inflation refuses to cooperate. A hot PCE, followed by sticky CPI and firm jobs numbers, would leave Powell in the worst kind of crosswind — easing into an environment where prices are still pushing higher. That’s not precision flying, that’s landing a 747 on an icy strip with engines groaning.

The US data calendar adds more turbulence. Thursday’s revised Q2 GDP will highlight whether consumer spending — the main engine pulling the US economy through the headwinds — is still throttling forward. Personal income data will be just as critical. If wages hold up, the household sector can keep providing thrust. If they don’t, growth loses altitude fast, and rate cuts become less about insurance and more about damage control.

Canada’s story is a different weather system entirely. Its Q2 GDP, due Friday, is expected to contract around -0.7%. Trade conflict with Washington is leaving clear scars: weaker exports, inventory drawdowns, and slower momentum. Ottawa may try to signal goodwill with tariff concessions, but the data will show how much turbulence has already been baked in.

Asia lines up with its own air traffic. The RBA drops minutes after three cuts in this cycle, giving markets a sense of how much fuel they think is left in the tank. The Bank of Korea is expected to hold steady at 2.5%, while the Philippines is likely to slice rates by 25 bps, dragging them to a three-year low. India posts GDP at an expected 6.6%, slowing but still cruising well above developed peers. Japan offers CPI, unemployment, and services PPI — the kind of cockpit indicators that tell the BoJ whether it can sit tight or needs to adjust controls. China’s July industrial profits will matter too; another contraction could push Beijing to hit the fiscal throttle harder.

Industrial production across Korea, Japan, Singapore, and Taiwan will show how much structural drag was already at work before the latest tariff headwinds hit. Even Hong Kong’s trade data plays in, as the city remains a key transshipment hub for flows into and out of the mainland.

Europe’s skies aren’t clear either. Germany’s Ifo survey is set to capture business morale in the face of escalating trade frictions. Europe’s growth engine has already been sputtering, and another downgrade in confidence could force the ECB to keep running reactive rather than proactive.

Step back and the landscape is stark. Inflation is proving harder to extinguish than hoped, tariffs are acting like a headwind tax across economies, and Powell has essentially admitted the job market is the weak spot on the dashboard. Every tick of PCE, every word from a Fed official, every signal in GDP or income data becomes a gust of wind hitting the wings. Traders are still clinging to the hope this will be a 2019-style “insurance cut” cycle, where the Fed nudges policy looser and keeps the economy aloft. But history warns otherwise: when the Fed cuts, it’s usually because the plane has already started losing altitude. By the time the parachute opens, you’re already dropping.

This week isn’t a smooth flight path — it’s a test of whether Powell can keep the plane stable with one engine sputtering and the weather turning unpredictable. The market is betting that the Fed still has enough control of the cockpit to steer clear of a stall. The risk is that Powell is no longer piloting, just bracing with the rest of us as the tariff turbulence builds.

Tariff heat: Bonfire or slow-burning fuse?

Christopher Waller has been hammering home a point that markets often struggle to digest: tariff-driven inflation is more of a mirage than a regime shift. In his telling, tariffs are a splash, not a tide — a one-off tax on goods that jolts prices temporarily but doesn’t create a self-sustaining cycle of inflation. Importers, exporters, and producers split the burden, and only a fraction of the cost ever reaches the consumer. A 10% tariff might nudge PCE inflation up by 0.3%, but those effects bleed out of the system within a year. For Waller, that means monetary policy should keep its eye on the underlying current of inflation, not the froth on top.

The underlying current right now is telling a different story than the headlines. Core inflation is tracking just above 2%, close enough to the Fed’s target to argue that the inflation fight has largely been won. Growth, meanwhile, has slipped toward 1.2%, and unemployment is edging higher around 4.1%. In Waller’s book, that’s the footprint of policy that is too restrictive. He sees the funds rate sitting more than a full percentage point above neutral, and the longer it stays there, the greater the risk of unnecessary economic drag. His prescription is a cautious trim: cut 25 basis points, then reassess. It’s not a declaration of victory, but a recognition that policy is leaning too hard against the wrong foe.

For traders, the signal is straightforward. Tariffs may make shoes, tools, or appliances more expensive this quarter, but they don’t rewrite the script on inflation expectations. Markets should resist treating every tariff headline as a trigger for monetary panic. In Waller’s framework, tariffs are political noise that the Fed should “look through,” because they don’t alter the destination. What matters is the climate, not the passing weather, and that climate suggests easier policy ahead. If he’s right, tariff inflation fades, the Fed cuts cautiously, and the yield curve reshapes itself around growth dynamics rather than tariff drama. Tariffs may sting, but they are not the architecture of a new inflation era — just a passing mirage on the horizon.

I’m still inclined to lean into that camp. But in trading, logic rarely walks a straight line. The counter-argument is harder to ignore: boardrooms can talk about absorbing costs all they want, yet eventually the pressure bleeds through to shelves, receipts, and balance sheets. That’s when theory meets reality.

Take Home Depot. Back in May, they swaggered onto their earnings call, promising investors they’d hold the line on prices and even capture market share while others blinked. Three months later, their tone had shifted—tariffs weren’t an abstract risk anymore, they were a real tax creeping into imported goods. What was once posturing turned into a reluctant admission: “modest price movement in some categories.” That’s code for “the buffer is breaking.”

The sequencing matters. At first, companies absorb costs—trimming margins, leaning on suppliers, or stocking up before tariff deadlines. Nobody wants to slap customers with sticker shock over a tariff that might vanish with a handshake in Washington. But the longer tariffs stay cemented in place, the less room there is to hide. Supply contracts reset, inventories run down, and the economics shift: companies push those costs downstream.

Goldman Sachs economists — and I’ll say it outright, they remain among the best sell-side guides to this cycle — have mapped the tariff pass-through in a way that rattles Waller’s narrative. In February, when the first tariff wave landed, U.S. firms largely absorbed the hit. By June, though, about 22% of the costs were already bleeding through to consumers. Their projection is starker: by October, nearly 70% of tariff costs will be passed along. That’s not a nuisance. That’s a second fuse, burning quietly beneath the market’s celebration of imminent rate cuts.

The timing collides awkwardly with the Fed’s shifting mandate. Powell may be pivoting toward jobs, but headline inflation is about to get a tariff kicker just as the central bank tries to ease policy. That’s the kind of policy crosswind that traders know can turn a gentle breeze into a storm.

The message for the week ahead is clear: don’t take comfort in muted prints. The tariff bill is coming due, and this time it’s not politicians but retailers, suppliers, and ultimately consumers who will deliver the punch.

The takeaway for traders is uncomfortable but essential. On one hand, Waller is right: tariffs don’t reset the inflation regime. They don’t alter the long-run anchor of expectations. On the other hand, the pipeline effect ensures that the next few months are unlikely to deliver a clean disinflation print. Instead, it’s a staggered relay — corporate margins first, consumer prices next, and eventually the political fallout that follows when households feel the pinch at the checkout aisle.

So you end up straddling the fence. The theory says “look through it.” The practice says “trade what’s in front of you.” And what’s in front of you is a market lulled into complacency by the mirage, even as the ground starts to tremble underfoot. The fuse is lit — not an explosion, but a slow burn that will shape how inflation prints and how the Fed reacts into year-end.