Key Tests for Inflation
August 11, 2025
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U.S. equity markets are opening relatively mixed this morning after a higher finish to cap off a strong week. News of a planned stock offering of Fannie Mae and Freddie Mac held the most potential impact for fixed-income investors.1 This transaction, which could come to fruition before year end, still has many unknowns, but a combined $500 billion valuation appears higher than most were expecting.2 Stocks extended their gains last week as earnings continued to exceed expectations with positive guidance for the second half of the year.3
Additionally, the key drivers supporting higher markets include more clarity on the tariff and tax picture, continued spending in artificial intelligence (AI) and rates now pricing in an almost 90% chance of a Federal Reserve (Fed) rate cut in September.4 These narratives will be tested this week. The Fed continues to be in a challenging position, with inflation expectations being weighed against the weaker-than-expected employment report/revisions earlier this month.
The key tests will begin on Tuesday with the consumer price index (CPI).5 Expectations are for inflation (excluding food and energy) to accelerate from 0.2% last month to 0.3%.6 That would bring year-over-year CPI (excluding food and energy) to 3.0%,7 higher than the Fed is looking for to be able to cut rates. The producer price index for July will be released on Thursday, and expectations are for reacceleration to 2.5% from 2.3% in June.8 Other economic numbers to watch this week include China’s retail sales and industrial production for July released near the end of the week.9 In addition, U.S. retail sales for July and the University of Michigan sentiment report for August are both out on Friday.10
Sources:
1,2Reuters – Trump administration eyeing IPOs for Fannie Mae and Freddie Mac this year, US official says; 8/8/25
3CNBC – S&P 500 rises, Nasdaq closes at record Friday as Apple shares rally: Live updates; 8/8/25
4Reuters – J.P.Morgan brings forward Fed rate cut forecast to September; 8/8/25
5-8,10Investing.com – Stocks Week Ahead: Markets Brace for Inflation’s Big Return; 8/11/25
9Reuters – Stock and bond markets cautious ahead of big week for geopolitics and economic data; 8/11/25
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