The reaction over July’s employment report continues to moderate, as this week’s economic data shows cooling inflation backed by a resilient economy. The Consumer Price Index (CPI) dropped to 2.9% year over year from 3% last month, signaling that inflation is gradually moving closer to the Federal Reserve’s target. Retail sales were up 1% in July, exceeding expectations.  

For the Fed, these strong retail sales numbers could indicate that the economy is still strong enough to handle higher interest rates without slowing down too quickly. Economists still expect a rate cut at next month’s Federal Reserve meeting, but the latest numbers suggest the likelihood of a 0.5% cut versus a 0.25% cut has slightly diminished. 

Looking ahead, the upcoming Jackson Hole Economic Symposium will be the key event on next week's calendar.