Weekly Commentary August 18th, 2025

 The Markets  

Was inflation higher, lower, or steady? 

Perspective has a tremendous influence on how we perceive the world around us. If you saw any three-dimensional chalk drawings on sidewalks this summer, you understand how perspective affects understanding. When seen from one direction, a chalk drawing looks flat. When seen from another, a winged dragon surges from a hole in the pavement. 

Last week, major news sources had varied perspectives on inflation. Here are a few of the headlines we saw: 

“Core Inflation Rises to 3.1 [percent]” (Barron’s)

“Inflation holds steady…” (CNN)

“Inflation cools slightly in July from prior month” (Fox Business) 

Remarkably, all were correct. The news sources simply highlighted different aspects of the Consumer Price Index (CPI). Here’s what the CPI showed for June and July of this year. 

Headline inflation moved slightly lower, on a month-to-month basis (from June to July). It remained steady year over year, which is the 12-month period through July 2025. In contrast, core inflation, which excludes volatile food and energy prices, moved slightly higher on a month-to-month basis (from June to July). It increased year over year. 

The Federal Reserve (Fed)’s target for inflation is 2 percent. 

The Producer Price Index (PPI) came out last week, too. It tracks how prices have changed for groups that produce and sell goods and services. It was up 3.3 percent in July, year over year, which was higher than June’s 2.4 percent increase. 

“U.S. wholesale inflation accelerated in July by the most in three years, suggesting companies are passing along higher import costs related to tariffs. The producer price index increased 0.9 [percent] from a month earlier, the largest advance since consumer inflation peaked in June 2022…,” reported Augusta Saraiva of Bloomberg.  

Last week, major U.S. stock indexes continued to rally. U.S. Treasury yields were mixed. Yields for some shorter maturities of Treasuries moved lower, while yields on longer maturities rose. 

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. 

Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable. 

WHERE ARE INTEREST RATES HEADED? One of the drivers behind the recent stock market rally has been an expectation that the U.S. Federal Reserve (Fed) will respond to softening economic data by lowering the federal funds rate, reported Saeed Azhar, Johann M Cherian and Sanchayaita Roy of Reuters. 

Fed rate cuts are intended to stimulate economic growth by making it less expensive to borrow money. When it’s cheaper to borrow, companies’ expenses may fall and profits can increase, lifting stock prices, reported Mary Hall of Investopedia. 

After last week’s Consumer Price Index was released, expectations for a September Fed rate cut soared above 90 percent, according to CME FedWatch. “Inflation is still higher than the Federal Reserve would like — but not high enough to stop the central bank from cutting interest rates next month. That’s investors’ takeaway from yesterday’s consumer price index report,” reported Phil Serafino and Edward Bolingbroke of Bloomberg.  

The catch is that a Fed rate cut doesn’t always have the intended effect. Sometimes, the Fed reduces or increases the federal funds rate and other interest rates don’t follow suit. Bloomberg Economics Chief Economist Tom Orlick explained: 

“Let’s cast our minds back briefly to the early 2000s, to [former Fed Chair] Ben Bernanke and to the famous savings glut hypothesis. So, back then, the Fed was hiking [the federal funds rate] but long-term Treasury rates weren’t going up. Bernanke said it’s because there’s a glut of global savings. All of this money is coming from China and Saudi into the U.S. Treasury market…that situation is reversed and we’re no longer in a world with a savings glut. We’re in a world with a savings shortage. And that means it doesn’t matter who President Trump appoints as the next Fed chair…that savings shortage is going to mean that long-term rates, the 10-year Treasury yield stays high and…we think 4 to 5 percent for the 10-year Treasury is the new normal.” 

The 10-year U.S. Treasury note yielded 4.27 percent at the start of last week. By week’s end it was at 4.33 percent. 

WEEKLY FOCUS – THINK ABOUT IT

“I don't think there's too much normal out there anymore. Though there's still plenty of average to go around.”

― John David Anderson, Author  

* These views are those of Carson Coaching, not the presenting Representative, the Representative’s Broker/Dealer, or Registered Investment Advisor, and should not be construed as investment advice.

* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named firm or broker/dealer.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the 3:00 p.m. (London time) gold price as reported by the London Bullion Market Association and is expressed in U.S. Dollars per fine troy ounce. The source for gold data is Federal Reserve Bank of St. Louis (FRED), https://fred.stlouisfed.org/series/GOLDPMGBD228NLBM.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.

* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.

* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.

* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

* Asset allocation does not ensure a profit or protect against a loss.

* Consult your financial professional before making any investment decision.  

Sources: 

https://www.barrons.com/livecoverage/inflation-july-cpi-rate-report/card/core-inflation-rises-to-3-1--UD6vxFsucLKhK6pJYSX8  or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/08-18-25-Core-Inflation-Rises-1.pdf

https://www.cnn.com/2025/08/12/economy/us-cpi-consumer-inflation-july 

https://www.foxbusiness.com/economy/cpi-inflation-july-2025 

https://www.bls.gov/news.release/cpi.nr0.htm 

https://www.bls.gov/news.release/archives/cpi_07152025.htm 

https://www.richmondfed.org/publications/research/econ_focus/2024/q1_q2_federal_reserve 

https://data.bls.gov/timeseries/WPUFD4&output_view=pct_12mths 

https://www.bloomberg.com/news/articles/2025-08-14/us-producer-prices-rise-by-most-in-three-years-on-services 

https://www.barrons.com/market-data  or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/08-18-25-Barrons-Market-Graphs-9.pdf

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2025 

https://www.reuters.com/world/us/sp-500-nasdaq-hit-new-closing-highs-rate-cut-hopes-2025-08-13/  https://www.investopedia.com/investing/how-interest-rates-affect-stock-market/

https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html  or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/08-18-25-FedWatch-Market-Rate-Probabilities-11.pdf

https://www.bloomberg.com/news/newsletters/2025-08-13/fed-rate-cut-bets-ramping-up-after-inflation-data?srnd=phx-economics-v2  or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/08-18-25-Fed-Rate-Cut-Bets-12.pdf

https://www.bloomberg.com/news/videos/2025-08-07/-the-price-of-money-with-bloomberg-s-tom-orlik-video

https://www.goodreads.com/quotes/search?q=unexpected