Federal Reserve FOMC Meeting Minutes
News release day: Wednesday, August 20
The Federal Reserve’s FOMC Meeting Minutes from July 30 will be published on Wednesday. This meeting took place prior to the release of July employment and inflation data, during which Chairman Powell maintained a strongly hawkish stance. However, the board’s vote also carried controversial points, as Governor Waller (a Republican economist) and Governor Bowman voted in favor of a rate cut. This highlights the growing division within the Federal Reserve’s Board of Governors.
Such a split within the Fed is unprecedented in the past three decades and indicates that the central bank is facing highly complex economic conditions and the risk of stagflation. Proponents of rate cuts argue that inflationary pressure from tariffs will be temporary, since a weak labor market has left workers with little bargaining power to demand higher wages. As a result, there is no significant risk of wage driven inflationary pressures.
On the other hand, most Federal Reserve officials believe that tariffs will create persistent inflationary pressures, and that the Fed must suppress inflation expectations by keeping interest rates unchanged.
Outside the Fed’s policy discussions, the economic data paints a contradictory picture: rising inflationary pressures alongside broad weakness in the labor market. As the year draws to a close, the risk of stagflation becomes increasingly evident. The latest employment figures revealed significant downward revisions in job creation, while July’s inflation data pointed to strong price pressures in the services sector. This leaves the Fed at a crossroads — whether to prioritize supporting the labor market or focusing on controlling inflation.
Market Impact:
Given the key economic data released since the meeting, we do not expect the market to react strongly to the FOMC Minutes, as the session took place before these reports. Overall, the outcomes of the meeting have already been priced into the market.
Unemployment Claims
News release day: Thursday, August 21
Initial jobless claims for the week ending August 15 fell by 3,000 to 224,000, indicating that employers remain reluctant to lay off workers. Continuing claims also declined slightly, reaching 1.95 million.
As shown in the chart, continuing jobless claims remain at their highest levels since 2021, highlighting weak demand for labor. In an environment of uncertainty, high borrowing costs, and increasing risks, companies are reluctant to hire new employees. This has led to longer job search durations, with the latest employment data showing a rise in the number of individuals unemployed for more than 27 weeks.
Market Impact:
If the data comes in higher than expected (more jobless claims than forecast), it will signal further weakness in the labor market and put pressure on the U.S. dollar. Such a scenario would increase expectations of a Fed rate cut, benefiting risk assets, gold, and the euro.
Conversely, if the data is lower than expected, it would be interpreted as an improvement in the labor market and could temporarily strengthen the dollar. However, in the medium term, sustained dollar strength will depend on additional labor market indicators. In this case, gold is likely to decline, and the euro may also experience temporary weakness.
Flash Services PMI
News release day: Thursday, August 21
On Thursday, the preliminary Services PMI data will be released. The latest ISM Services PMI dropped to the borderline between contraction and expansion (the 50 level), signaling stagflation risks in the sector. Companies are facing weak demand and rising costs, which has led to workforce reductions.
The Services Employment Index fell to 46.4, marking its fourth decline in the past five months and one of the lowest readings since the pandemic. At the same time, input prices surged to their highest level since October 2022. These conditions align with the latest inflation and employment data that indicate the risk of stagflation.
However, the weakness in the labor market is not driven by layoffs; rather, companies are simply unwilling to hire new staff. This trend is confirmed by other labor market indicators, including continuing jobless claims.
Market Impact:
If the data comes in stronger than expected, it will be seen as a sign of growth in the services sector, strengthening the U.S. dollar while weighing on the euro. The reaction of risk assets and gold will depend on the details. If the report shows rising inflation alongside weakening employment and business activity, it will trigger risk off sentiment. In the medium term, should these signals persist, the outcome would be negative for risk assets and supportive for gold.
Conversely, if the data is weaker than expected, the dollar will likely weaken while the euro strengthens. For risk assets and gold, the impact will hinge on the source of the weakness. If a softer PMI reflects falling output prices, lower inflation expectations could boost risk assets. However, if the weakness stems from declining employment and business activity, the data would hurt risk assets while supporting gold.
In the short term, markets are unlikely to react strongly to these details, but they play an important role in shaping medium term trends and broader macroeconomic outlooks.
Flash Manufacturing PMI
News release day: Thursday, August 21
Similar to the services sector, the Manufacturing PMI indicates contraction and recessionary pressures. On the demand side, both new orders and export orders have declined. The weakness in new orders is largely due to disagreements between buyers and sellers over who should bear the cost of tariffs. In addition, trade tensions and reduced foreign demand have contributed to the drop in export orders.
Employment conditions in the manufacturing sector are far from positive. The Employment Index dropped to 43.4 in July, marking the sixth consecutive monthly decline. The weakness in industrial employment is more severe than in services, as workforce reductions are driven primarily by layoffs rather than simply a freeze in hiring. Companies cite uncertainty about short and medium term demand as the main reason for downsizing.
Meanwhile, price pressures have risen sharply, with the Prices Paid Index climbing to very high levels (above 60). Input costs have been increasing for ten consecutive months, with rising aluminum and steel prices affecting the entire supply chain. Tariffs have also played a significant role in driving costs higher. Increase in prices and a deeply weakening labor market underscores the risks of stagflation.
Market Impact:
Unlike in the past, when the Services PMI carried more weight, the Manufacturing PMI has now come into focus due to tariff related challenges.
If the data comes in higher than expected, it will be seen as a sign of improvement in the manufacturing sector, strengthening the U.S. dollar while pushing the euro lower. The reaction of risk assets and gold will depend on the details of the report. If the increase in the index is driven by stronger employment or new orders, risk markets are likely to benefit after digesting the news, since it signals economic growth. However, if the rise in the index is mainly due to higher raw material prices without any improvement in employment, it will not be supportive for risk assets. That said, in the short term, after the release, the market tends to show only a limited response to these factors.
If the data comes in weaker than expected, the U.S. dollar will likely weaken while the euro strengthens. For risk assets and gold, the key drivers will be rate cut expectations and inflation indicators. If the Prices Index shows a decline, inflation concerns would ease, supporting expectations for rate cuts. In this scenario, both risk assets and gold would benefit. However, if the inflation index continues to reflect high costs, the outlook would shift toward steady interest rates, putting pressure on risk assets and gold.