MNI US Macro Weekly: September Hike Odds Fade, CPI Test Next

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Executive Summary

• Fresh from a June report that was characterized as ending a mostly solid H1 on a soft note, the July payrolls report then started H2 also on the backfoot. That is at least the case with particularly soft payrolls and wage growth although the unemployment rate pressed lower once again to what is now the weakest since Jan 2025, pointing to an uneasy balance in the labor market.
• Elsewhere, July's ISM manufacturing report showed strong broad-based improvement, with the headline index rising to a 50-month high 55.6 from 53.3 prior. The services report was strong in most meaningful areas of activity, including the headline at 54.1, though employment was a notable exception on the weak side and price pressures were more persistent than anticipated.
• In Fed personnel matters, the Trump administration is reported as moving ahead with a revised attempt to fire Fed Governor Cook after SCOTUS in June ruled against the original attempt, Trump has repeatedly called Fed Chair Warsh in a departure of precedent according to the WSJ and the FT reports that Warsh will stick with his pared back communications style despite last week’s FOMC reaction.
• There has been a range of Fedspeak from across the FOMC hawk-dove spectrum after an initially slow start to post-FOMC appearances. Williams and Daly unsurprisingly took the dovish angle, although Daly less so than a month ago, whilst Musalem and Schmid maintained hawkish rhetoric amongst others. Of those calling for hikes, there is generally consensus for an incremental approach that is better starting now.
• September hike pricing has faded to a little under 50/50 probability as the payrolls report added to Middle East de-escalation in developments that otherwise drove markets this week.
• However, July inflation updates loom large next week on Wed/Thu, and there is of course another August round of both NFP and CPI/PPI reports due before the FOMC decision on Sep 16.