Major U.S. stocks were little moved as midweek gains were offset by a lackluster revenue forecast from , kicking off a wider sell-off in tech and raising concerns that the past two years’ artificial intelligence spending spree could be losing steam. All eyes are now on the U.S. chipmaker to see how it navigates the fierce trade war between Washington and Beijing after third-quarter guidance for Chinese sales was noticeably lacking from its latest earnings report.
Meanwhile, a combination of stubbornly high inflation and a slowing labor market has left the to take a “wait and see” approach on interest rates as the impacts of tariffs continue to play out in the economic data. As we noted in last week’s Commentary, Fed chair Jerome Powell struck more of a dovish tone during his recent address in Jackson Hole, Wyoming, signaling the possibility of a September rate cut … with a few key provisions.
Despite a softening jobs market, he cautioned, tariffs continue to pose persistent inflation risks. That leaves the Fed in a “challenging position,” to quote Powell directly, by threatening its dual mandate of achieving maximum employment while keeping prices stable. Powell’s speech followed significant downward revisions in Bureau of Labor Statistics (BLS) job data for May and June, showing 258,000 positions lost over the two months. At the same time, a favored inflation gauge by the Fed suggests that consumer prices have exceeded policymakers’ 2 percent target.
The latest Personal Consumption Expenditures () price index reading from the BLS showed that prices rose across the U.S. at an annual rate of 2.6 percent last month, the same as in June and in line with economic forecasts. Core inflation, which excludes volatile food and energy costs, rose 2.9 percent in the 12 months through July, however—its highest annual rate since February. While we believed inflation would pull back sharply from its heightened COVID-impacted levels, we forecasted that the “last mile” to reach the Fed’s 2 percent target would be the most challenging. Core PCE inflation has been stuck in a narrow range of 2.6–3.1 percent since the end of 2023, with the current reading of 2.9 percent representing the highest rate since February.
The data lends more insight into why the Fed has been so hesitant about slashing . While inflation has fallen significantly from its 7.2 percent peak three years ago, it continues to hover above the central bank’s 2 percent target. Despite looming economic uncertainty, however, Americans appear not to be tightening their purse strings just yet. Consumer spending rose by 0.5 percent from June to July, according to the Bureau of Economic Analysis (BEA) report, the largest increase seen since March.
Surprisingly, goods inflation faltered by -0.13 percent in July after rising by 0.4 percent in June. Services inflation, on the other hand, remained sticky in July, rising by 0.35 percent—the strongest advance since May—with the year-over-year inflation remaining at an elevated 3.6 percent pace. This presents a significant challenge for the Fed when evaluating interest rates: Persistent pricing pressure in these areas could signal that inflation has become ingratiated in the economy even as more-flexible goods prices have fallen. This could indicate a late-stage economy in which a tight labor market is juxtaposed by strong consumer demand. Should goods inflation rise in coming months as companies choose to pass along higher costs from tariffs to consumers, the Fed’s 2 percent inflation target could become more difficult to achieve than ever.
Over the next few months, investors are hoping the market will reveal the answer to a three-part question: Do tariffs cause (a.) slowing growth and labor market retrenchment, (b.) inflation or (c.) both? And if it is both, how will the Fed handle interest rates without putting its dual mandate of maximum employment and stable prices at risk?
Further complicating things, a federal appeals court struck down President Donald Trump’s use of emergency powers granted by Congress to impose tariffs on Friday. The ruling could potentially result in the administration having to repay billions worth of levies, a blow to the U.S. Treasury. It also raises questions as to whether the deals Trump has clinched with the European Union, Japan, South Korea and other trading partners to reduce “reciprocal” tariffs on imports will still stand. The tariffs remain in place as the case proceeds.
Under intense pressure from the Trump administration to cut interest rates, Chair Powell now finds himself walking a tightrope between curbing inflation and boosting the labor market. We’ll be paying close attention to the labor market, where “the balance of risks appears to be shifting” in terms of inflation, as Powell noted in his speech last week. A report from the BLS due to arrive this Friday could be a major deciding factor as to whether the Fed opts to cut rates at its September 17 meeting—even as inflation remains above the Fed’s 2 percent target.
Between now and then, investors will be focused not only on how Fed policymakers interpret the incoming data but also on the policymakers themselves. Trump nominee Stephan Miran, current chair of the White House’s Council of Economic Advisers (CEA), is expected to be passed through the Senate to replace Adriana Kugler, who resigned as a governor of the Federal Reserve Board earlier this month. Separately, Federal Reserve governor Lisa Cook argued on Friday for an emergency temporary restraining order to block President Trump from firing her while a lawsuit over her termination plays out in court. Trump said on Monday that he was firing Cook after his administration leveled mortgage fraud accusations against her.
Wall Street Wrap
Nvidia earnings weigh on tech sentiment: Nvidia’s revenue forecast failed to impress last week, igniting fears over whether the AI boom can continue to support a heavily bifurcated economy in the long term. On a call with investors on Wednesday, Chief Executive Officer Jensen Huang rejected the notion that enthusiasm in AI infrastructure is waning. “The opportunity ahead is immense. We see $3 trillion to $4 trillion in AI infrastructure spend by the end of the decade.”
Nonetheless, a China-shaped storm cloud continues to hover over the $4 trillion tech juggernaut. Despite reporting a more than 50 percent jump in sales, the company warned that uncertainty surrounding its China sales could slow growth this quarter. Nvidia’s China revenues are currently difficult to forecast, given a recent declaration by U.S. government that it will take 15 percent of proceeds from sales of Nvidia’s H20 microchips in the country. The company is separately in talks with the White House about selling a less advanced version of its Blackwell chips in China, a process that “will take a while,” Huang noted in an interview with Fox Business last week.
Falling labor differential suggests rising unemployment: The Conference Board’s Consumer Confidence Index fell 1.3 points in August to 97.4—down from 98.7 in July—suggesting that consumers are taking note of slower labor conditions. The Present Situation Index, which measures consumers’ assessment of current business and labor market conditions, fell by 1.6 points to 131.2. The Expectations Index, which measures Americans’ short-term expectations for their income, business conditions and the job market, fell by 1.2 points to 74.8. The survey showed that the number of consumers who viewed jobs as “hard to get” rose to 20 percent in August from 18.9 percent in July—the highest since February 2021—while the amount who said jobs were “plentiful” eased slightly.
That caused the Conference Board’s much-watched labor differential to fall for the eighth consecutive month, to 9.7 in August from 11.0 in July. We often note that the labor differential has an inverse correlation to the national unemployment rate, meaning this latest decline could foreshadow further job losses in the coming months.
Income and spending stayed strong: Consumer income and spending remained resilient in July despite tepid consumer confidence and rising prices, according to BEA data released on Friday. Personal income increased by $112.3 billion (0.4 percent) in July, while disposable personal income—personal income excluding taxes—increased by $93.9 billion (0.4 percent). Personal spending increased by $108.9 billion (0.5 percent), the highest increase seen since March’s 0.7 percent, a likely reflection of consumers’ attempts to purchase certain items before tariffs set in.
Solid GDP indicator overshadowed by Fed uncertainty: Fresh data from the BEA on Thursday showed that inflation-adjusted gross domestic product, which represents the value of goods and services produced in the U.S., expanded at a 3.3 percent annualized pace in the second quarter. The reading suggested that the U.S. economy grew faster than previously estimated, highlighting the resilience of consumer spending. Traders refrained from making any big moves, however, amid uncertainty over interest rates and the subsequent tech rout triggered by Nvidia’s lukewarm earnings.
New home sales drop: Sales of new single-family houses in July 2025 fell slightly to a seasonally adjusted annual rate of 652,000, according to joint estimates by the U.S. Census Bureau and the Department of Housing and Urban Development. This represents a 0.6 percent decrease from the June 2025 rate of 656,000 and an 8.2 percent decrease from the July 2024 rate of 710,000. The median sales price of new houses sold in July 2025 was $403,800, the lowest July median seen since 2021. The latest median figure is 0.8 percent below the June 2025 median price of $407,200 and nearly 6 percent below the July 2024 price of $429,000. Additionally, a post-pandemic high of 66 percent of builders reported using sales incentives in an effort to clear a historically elevated inventory of 499,000 new homes for sale on the market.
Friday: The BLS will release its at 8:30 a.m. We’ll be paying close attention given last month’s weak U.S. payrolls data and Powell’s comments that the labor market is becoming an increasingly key risk factor for inflation. A further softening in the labor market would reinforce the likelihood of a September rate cut and potentially revive expectations of a third 25-basis-point cut to come later this year.