NOK: G10 Outperformance Persists Since Morning CPI Release

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• The limited set of data releases in the return from the July 4 long weekend didn’t greatly change the outlook for the US economy, reflected by almost-unchanged Fed cut pricing (still 50bp through year-end).
• Employment data appeared to confirm a “low firing, low hiring” labor market, and GDP growth tracking has settled in the 2-3% Q/Q SAAR area for Q2 with signs of gradual but not dramatic slowing in Q3.
• Inflation looks set to pick up in Q3 though perhaps not to as dramatic an extent as previously feared, and in the meantime, inflation expectations are not showing signs of de-anchoring.
• On the latter front, there was perhaps surprisingly little market reaction to the White House’s series of announced tariff rates including on Brazil, Canada, Japan and South Korea, some of which appeared to be higher than had been expected, not to mention a hefty 50% levy on copper imports.
• Fed speakers were limited in number but impactful. Gov Waller reiterated his call to consider a July rate cut, but also gave an extensive (and hawkish-leaning) speech on how he envisaged the future size and composition of the Fed's balance sheet – a subject that will be of growing importance in the coming months as reserves shrink amid the Treasury’s post-debt limit cash rebuild.
• St Louis Fed Pres Musalem warned of tariff inflation impacts potentially extending well into 2026, while Chicago’s Goolsbee said that the latest round of tariff announcements could push back further the Fed’s resumption of easing.
• Conversely, San Francisco's Daly confirmed at an MNI event that she sees two cuts by year-end, sounding increasingly unconcerned about the tariff impact on inflation and saying that she doesn't want to get "behind" in adjusting the policy rate.
• The main headline from the June FOMC meeting minutes was on the Committee's split on the rate outlook, which had already been encapsulated in the Dot Plot mostly split between two and zero cuts for the year. One hawkish note was that "several participants commented that the current target range for the federal funds rate may not be far above its neutral level".
• June CPI is the highlight of next week's US data slate, with MNI's early roundup of analyst expectations showing an anticipated acceleration in the main measures of inflation.
• But even a downside surprise would be unlikely to persuade the Federal Reserve to seriously consider cutting rates in July, given the expected pickup in tariff-related prices in coming months. That said, further evidence of soft price pressures would certainly help lay the groundwork for a resumption of easing in September, particularly if PCE is confirmed to be tame.
• Wednesday’s PPI will refine the post-CPI estimate of PCE. We also have a busy Thursday for data with June Retail Sales alongside the customary weekly jobless claims report.

• June CPI is the highlight of next week's US data slate.
• Wednesday’s PPI will refine the post-CPI estimate of PCE.
• We also have a busy Thursday for data with June Retail Sales alongside the customary weekly jobless claims report.
• Data Friday will help offer the latest gauge of residential investment activity, which has been one of the weak points in the economy so far this year.

Chicago Fed President Goolsbee tells the Wall Street Journal in an interview Friday (link) that this week's latest round of tariff announcements could force him and the FOMC to wait for longer before having enough clarity to cut rates.

• "I'm hopeful that when we go back and talk to [businesses] now, they don't say, 'Oh, this is putting us back to where we were on April 3... But I don't know, because this has just happened...The more we keep adding things to the mix that make it hard to figure out, 'Are prices going to be rising or not?' The more it's just throwing more dirt back in the air."
• On the recent criticism from the Trump administration, Goolsbee said "I'm still pretty confident that the culture of the Fed is one that everyone takes the job seriously and recognizes how important independence is from political interference."