The Week Ahead - 28 July - 1 August 2025

United States – On Wednesday we expect the Fed to leave rates on hold. There appear to be three factions. One large group expects to hold rates for the remainder of the year, another expects two cuts, likely starting in September. The final group is composed of Waller and Bowman, who have stated that they're ready to start cutting this July, likely for political reasons. They may have a dissenting vote this Wednesday. We believe Powell to be in the second camp, with a press conference reflecting that narrative. At the same time, we expect that increasing inflation over the summer will likely grow the first camp, to ultimately be the majority.

Thursday's inflation reading will likely confirm staying on hold for at least the summer. We expect Core PCE to come in at 0.3% m/m, higher than the CPI reading. Car prices, which reduced CPI, have less influence on PCE, while PCE is expected to get a bump from health care costs and financial services. The y/y core figure will stay at 2.7%, with some upside risk to 2.8%.

On Thursday we also get the initial Q2 GDP estimate. We expect growth to rebound to 2.4%, mostly due to a drop in imports of goods after the frontloading in the first quarter. We expect consumer spending to have increased by about 1.5%, higher than the 0.5% in Q1, but still a lot lower than the pace last year. Overall, this figure would represent sharp slowdown of the economy, with the first half of the year - which averages out some of the frontloading effects - growing at about 1%, compared to almost 3% last year. Risks to our forecast are mostly tilted to the upside.

Finally, on Friday we get the July labour market report. We expect a relatively strong non-farm payrolls at 170k, well above consensus. Our high forecast is mostly related to seasonal effects and the general overstatement of NFP in recent times. We therefore still expect the unemployment rate to revert back to 4.2%.

Eurozone – Q2 GDP is expected to contract on the back of an unwind in export frontloading to the US after tariffs rose in April. This is likely chiefly driven by a sharp fall in Irish GDP. Elsewhere, underlying domestic demand is likely to have continued to grow, albeit more modestly than in Q1. Inflation is expected to edge lower due to base effects in energy prices, while core inflation is expected to hold broadly steady.