Welcome back. It’s Thursday, and our regular readers know what that means: Felix is taking over the newsletter. Today he unpacks what we learned from yesterday’s FOMC decision and press conference. Here goes: 

Powell stands tall

Fed Chair Jerome Powell did quick work in yesterday’s FOMC meeting to quell any speculation about a September rate cut. 

With no meeting until September, optionality to guide toward a cut during next month’s Jackson Hole symposium and two more jobs reports and inflation reports to look at before the next meeting, there was very little incentive for Powell to signal any sort of dovishness. 

As the dust settled, odds of a rate cut in September lowered from 58% to 39%. 

Despite the hardline stance against any sort of easing from Powell, the committee was much less aligned beneath the surface about the path of policy. 

For the first time in 30 years, we saw two FOMC governors dissent on the decision. Governor Waller and Governor Bowman both dissented to cutting rates at this meeting. 

A dissent of this magnitude highlights the fork in the road in the context of US monetary policy.

Governor Waller has advocated for preemptive insurance cuts due to what he sees as emerging risks in the labor market and a high conviction that tariff inflation will be transitory. 

Contrasting the unemployment rate with the “jobs hard to get less jobs plentiful” data point, you can see where he’s coming from regarding emerging risks to the labor market. 

That said, it’s clear that inflation is starting to tick up due to tariffs. Today we received core PCE data (the Fed’s preferred inflation metric), and no matter which way you try to annualize the data, it’s clear that inflation is skewed higher, not lower.

Picking apart services inflation from goods, it becomes crystal clear that the stickiness of inflation is being manifested by higher goods inflation brought on by tariffs. This is quite different from the past two years, where goods were outright deflationary and it was services propping things up:

This combination — paired with continued political pressure for it to cut rates — puts the Fed in a tough place. 

When Powell was asked about whether he was willing to “look through” tariff-related inflation as a one-time price adjustment, he sternly responded that “by not hiking rates right now, we already are.” 

That sounds like a shot across the bow directly at the Trump administration. As we finish off the data-heavy week, tomorrow’s jobs report — if it comes in hot — could well be the nail in the coffin for any potential rate cut in September.

— Felix Jauvin

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• We continue to look out for a verdict in the US government’s case against Tornado Cash founder Roman Storm. Casey chronicled yesterday’s closing arguments.  

• SEC Chair Paul Atkins said in a Thursday speech that the agency is launching what he called Project Crypto — “a commission-wide initiative to modernize the securities rules and regulations to enable America’s financial markets to move onchain.” 

• Speaking of the SEC, Cboe filed with the SEC yesterday for generic listing standards for crypto ETPs. Essentially, the exchange is proposing a rule that would allow it to list an issuer's shares if the underlying commodity has a futures contract on a “Designated Contract Market” for at least six months. Bloomberg Intelligence’s Eric Balchunas noted such standards would put about a dozen crypto ETFs in play.