Why This Week's Economic Data Points to a September Rate Cuts VIEW IN BROWSER I don’t know if Federal Reserve Chair Jerome Powell is a football fan. But I doubt it. If he were, he might have come across a well-known saying from legendary Hall of Fame NFL coach Bill Parcells: “You are what your record says you are.” Sounds simple enough, right? But the point behind this pithy quote is a little more profound. It means that sooner or later, your intentions, your excuses, your preconceived notions… none of that matters. At the end of the day, your record is what counts. Nothing else. I thought about this recently because Powell’s record on inflation – especially tariff-related inflation – speaks for itself. For months, he’s claimed President Trump’s tariffs would meaningfully drive up prices. He’s insisted on a “wait and see” approach when it comes to the data. And yet, month after month, the numbers told a different story. Then came the disastrous jobs report the first day of August: 73,000 jobs added in July, missing expectations for 115,000, plus a brutal downward revision of 258,000 jobs from the prior two months. (I shared the transcript from one of my members-only podcasts in this Market 360 to talk more about this report.) Bottom line: It showed the economy isn’t nearly as strong as the Fed would like you to believe. That’s why Wall Street has been on edge heading into this week’s economic trifecta – July’s Consumer Price Index (CPI), Producer Price Index (PPI) and this morning’s U.S. retail sales report. So, in this week’s Market 360, let’s dive into the details of this week’s economic data. I’ll cover what we learned, the key takeaways and the path ahead. And to wrap up, I’ll share where the next wave of innovation is happening – and what it means for investors. | Recommended Link | | | | This company is the lifeblood of AI data centers, yet almost no one has caught up with the story. Their hardware is so essential that the data center industry uses enough of it to stretch around the world 8 times – in a single building! So, if you own Nvidia stock now, you might be well-served to sell those shares and check out this under-the-radar play instead. Or if you missed the boat on Nvidia, this is a rare second chance to target tremendous profit potential as AI data centers spring up in every corner of the world. Get my full take on this exciting play right here… |  | | Consumer Price Index (CPI) I was on Maria Bartiromo’s show Tuesday morning when the latest Consumer Price Index (CPI) report came out. And I have to say, we were all pleasantly surprised. The CPI rose 0.2% in July, putting annual inflation at 2.7% – slower than the 2.8% economists expected. This is essentially the sixth month in a row that CPI has come in lower than economists’ expectations. Energy prices continue to fall, food costs remain contained and shelter inflation eased to 0.2% for the second month in a row. That’s a notable shift from earlier this year and a sign that housing and rental inflation is finally cooling. I was very happy that owners’ equivalent rent, or shelter costs, only grew 0.2%. That’s the same as the previous month, but a few months ago it was growing at a much faster rate. So, it’s a sign that the inflation in housing and rental costs is definitely starting to ebb. Core CPI, which strips out food and energy, rose 0.3% for the month and 3.1% over the past year. That’s the largest monthly gain since January and just a touch hotter than Wall Street was looking for. Some service categories – medical care, dental care and airfares – kept upward pressure on core prices. But with headline inflation holding at 2.7% and key categories like energy and shelter showing restraint, this report was still a surprise on Wall Street, which led to a strong two-day rally as bets on a September rate cut rose. Producer Price Index (PPI) If the CPI was the good news this week, the Producer Price Index (PPI) was the curveball. On Thursday, the July PPI report came in much hotter than expected – up 0.9% compared to the 0.2% increase economists were looking for. After five-straight months of the PPI being flat to even negative, we finally have an increase. But when you dig into the details, the picture gets a little more confusing. There are some extraordinary items skewing the headline number – like a surge in wholesale diesel prices and a big jump in trade margins. Wholesale food prices rose 1.4% in July, while wholesale energy prices climbed 0.9%. Now, if you just excluded food and energy, you’d expect the number to fall. But the PPI’s core rate still includes something called trade margins – and those surged a whopping 2%. If we go back to the “old” definition of core PPI (just stripping out food and energy), the increase would have been a more manageable 0.4%. Even so, wholesale service costs jumped 1.1%. One of the culprits? The stock market itself. In the PPI, they count investment management fees, and because the market rose in the second quarter, those higher fees billed in July pushed the services number up. So, in a way, it’s our fault. Wholesale goods prices were up only 0.4% – which isn’t bad. But within that, processed goods rose 0.8%, almost entirely because wholesale diesel prices spiked 11.8%. Bottom line, this was a very unusual PPI report. As I said, it was driven by a handful of extraordinary items – diesel, trade margins, food and energy. Strip those away, and the inflation picture isn’t nearly as alarming as that 0.9% headline makes it look. Retail Sales Finally, let’s look at the U.S. retail sales report. This morning, the Commerce Department reported that retail sales increased 0.5% in July, just below economists’ projections for only a 0.6% rise. This marks the second-straight month that retail sales rose following two months of declines in May and April. Personally, I was curious to see how many of the 13 categories in the report are showing gains. And the report showed that nine categories rose while the others fell. The largest gain came from motor vehicles and parts dealers, which increased 1.6% for the month, followed by home furnishings which increased 1.4%. Meanwhile the largest decline came from miscellaneous store retailers which saw a 1.7% fall. Now, one key metric I’ve been watching in the retail sales reports recently is spending at bars and restaurants, which is always a good sign of how consumers feel about their disposable income. This month’s report showed a 0.4% decline indicating consumers are remaining cautious due to tariff fears. All in all, though, this report painted a still-healthy picture when it comes to the U.S. consumer. While consumers seem to still be fickle right now, this mixed report should continue to put pressure on the Fed to cut rates in September. What It Means for the Fed Overall, the July CPI report reinforces my view that the Federal Reserve will cut rates in September. Headline inflation is running slower than economists expected, energy and food prices are behaving and shelter inflation – one of the stickiest categories all year – is finally showing signs of easing. Powell’s been dead wrong about tariff-related inflation, insisting for months that it would meaningfully raise prices. The reality is that even with July’s hotter PPI print, much of the increase was due to extraordinary one-offs like diesel and trade margins. Strip those away, and the inflation picture looks far less threatening. The weak July jobs report only adds to the urgency. With just 73,000 jobs added – and a 258,000 downward revision to prior months – the “resilient economy” narrative is cracking. The bond market seems to feel that way, too. Treasury yields only ticked up slightly on the PPI news after falling on Tuesday following the CPI release. And they held steady following today’s retail sales report. Wall Street also didn’t seem too bothered by the PPI report, as the S&P 500 hit another record high on Thursday. So, my takeaway is that we may still get a rate cut at the September FOMC meeting – but the odds of a half-point cut have probably slipped, and a quarter-point cut looks more likely. The Next Wave of Opportunity This week’s inflation reports make one thing clear – the Fed’s rate cut cycle is coming. And when it starts, the floodgates will open for the next wave of innovation. I believe one of the biggest beneficiaries will be a breakthrough I call “Physical AI.” You see, artificial intelligence is stepping off the screen and into the real world – powering robots, self-driving cars, automated factories and more. It’s a $20 trillion opportunity that could reshape entire industries and create massive wealth for early investors. We’re seeing the early signs everywhere. For example… - Amazon.com, Inc. (AMZN) now has more than a million robots working in its facilities.
- Tesla, Inc. (TSLA) is rolling out humanoid robots.
- Deere & Company (DE) is deploying autonomous tractors. Even “dark factories” overseas are running 24/7 with no human staff.
To help investors get ahead of this, my InvestorPlace colleagues Eric Fry, Luke Lango and I just launched a brand-new Day Zero Portfolio – seven cutting-edge stocks leading the Physical AI Revolution. Three of our robotics recommendations are already up in the double digits! If you’ve been waiting for the “iPhone moment” of robotics and AI, this is it. Don’t miss your chance to position yourself before the boom really takes off. Click here to watch our Day Zero briefing now to learn how to access our Day Zero Portfolio. During this special broadcast, we’ll even give you one of our top picks – completely free. Sincerely, | .png)
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