Inflation in the US refuses to ease as labour market signals diverge

⚡MarketPrimes Fast

Inflation remains elevated despite a slow disinflation trend

The Fed may be nearing a neutral rate, but monetary vigilance continues

Hiring is cooling, yet job cuts are not materialising

Housing-related service inflation shows clearer signs of decline

Wage growth is moderating, albeit gradually

Uncertainty surrounds Jerome Powell’s future at the Fed

AI is reshaping strategy in large firms, with minimal reach among small businesses

Legal risks could disrupt the current trade policy balance

The US dollar is gaining ground, reflecting monetary tightening persistence

AI-generated key points

Fed’s caution grows as inflation trend remains stubborn

Signs of US inflation deceleration have emerged, but confidence remains elusive. Recent comments from Neel Kashkari, president of the Minneapolis Federal Reserve, reveal a growing unease: price levels, while not spiralling, continue to linger far from the Federal Reserve’s comfort zone. According to him, the US central bank is merely nearing a neutral interest rate, a threshold where monetary policy no longer pushes nor restrains economic activity.

This assessment arrives in a delicate phase. Key indicators suggest inflation is cooling, yet the downward momentum appears fragile. Notably, housing-related services have begun to ease, but price pressures in other segments particularly those tied to wages still demand attention.

Hiring slows without triggering layoffs

Labour market dynamics are evolving with nuance. While hiring volumes are receding, there’s no surge in job losses. Kashkari notes a “cooling” trend rather than deterioration. This peculiar stasis fewer new jobs but stable employment could provide the Fed with some leeway. Yet, this balance remains precarious, vulnerable to a shift in business confidence or policy missteps.

Gradual wage deceleration offers a promising signal. The current moderation, if sustained, might help curb inflation without abrupt social impact. Still, the lagged effects of restrictive monetary policy add complexity to forecasts. Monetary tightening rarely hits instantly it simmers before boiling over.

Powell’s future under scrutiny

Political undertones have crept into the monetary conversation. Kashkari refrained from confirming whether Jerome Powell would be reappointed as Fed Chair once his term expires. The absence of clarity fuels speculation, particularly at a time when institutional continuity is being weighed against demands for recalibration.

Tensions also surfaced regarding central bank governance. Kashkari publicly disagreed with comments from Scott Bessent, who questioned the relevance of regional Fed presidents. In defending the institution’s current structure, Kashkari sought to reaffirm the legitimacy of local economic perspectives within national policymaking.

Tech giants shift focus as AI momentum builds

Strategic conversations in large enterprises are increasingly dominated by artificial intelligence. Kashkari observes that while top-tier corporations see AI as a driver of transformation, small businesses remain largely unaffected for now. The gap underscores a broader trend of unequal tech integration across the business ecosystem.

Concerns persist among lower- and middle-income households. Inflation, not automation, remains their primary worry. This contrast reflects how differently macroeconomic shocks ripple across income brackets and business sizes.

Legal volatility adds another layer of risk

Trade policy, once a key inflation driver, now appears more stable. Yet that stability might prove deceptive. Kashkari highlights potential judicial challenges that could dismantle Executive Branch tariff decisions. Any such ruling would inject fresh volatility into an already tense macroeconomic climate, complicating the Fed’s balancing act further.

Dollar stays firm as markets track Fed trajectory

Exchange rate data points to renewed US dollar strength. Gains were sharpest against the Canadian dollar (+0.56%) and the Swiss franc (+0.49%), while parity held steady against the yen. This upward movement reflects persistent expectations of a prolonged restrictive policy stance by the Fed.

Currency markets are mirroring the central bank’s challenge: stabilise inflation without triggering recession. As signals blur and outcomes hinge on fragile balances, investors face an environment where clarity is scarce, and each data point moves markets.