Markets creep back on hopes Warsh holds interest rates steady

Inflation crept back up, Trump instigated another trade war with Canada and Iranian sanctions threaten oil. Again.MANHATTAN (CN) — Wall Street recovered more of the lost ground from last week’s bond drama and remains optimistic the Federal Reserve will not touch interest rates next month.In his first speech Friday at the annual Jackson Hole Symposium in Wyoming, Federal Reserve Chair Kevin Warsh said a raft of recent inflation reports “all tell a similar story: Inflation is running above our 2% target.”Hours after the speech, U.S. markets closed up for the week, though not as high as they had been, with the Dow Jones Industrial Average gaining 282 points since last week, the S&P 500 37 points and the Nasdaq 222 points.Warsh is admittedly concerned by the most recent inflation data, which showed the personal consumption expenditures increasing by 0.2%, more than expected. Year-over-year PCE inflation was moderated somewhat by the slight fall in gasoline prices, keeping the index 3.7% higher than it was a year ago, according to the Bureau of Economic Analysis.In his speech, Warsh noted the six-month change to the PCE is 4.1% and added consumer price index reports over the summer might have beaten expectations but “they do not tell me that the underlying trends have meaningfully improved.”That said, experts don’t believe the rise in inflation will be enough to force the Fed to increase rates when it meets next month. “Inflation is annoyingly sticky right now, but not enough to move the Federal Reserve to hike,” Jamie Cox, managing partner at Harris Financial Group, said Wednesday.Inflation is not expected to get a reprieve from policy decisions at the White House, which this week escalated its economic war on Iran by announcing secondary sanctions against countries and networks that help Iran “smuggle oil, evade sanctions and fund terror.”Treasury Secretary Scott Bessent said China would not be exempt from such sanctions, which could spark a renewed trade war with that country even as Chinese President Xi Jinping is expected to meet with President Donald Trump next month.The Iran conflict, now in its sixth month, continues to jam shipping through the Strait of Hormuz; according to an analysis by Goldman Sachs, oil flows through the strait are roughly two-thirds what they were before the war. Barrels of Brent crude traded at roughly $89 by the closing bell on Friday.Trump’s 50% tariffs against select Canadian imports and retaliatory tariffs by Canada announced this week also aren’t likely to bring down inflation.The consistent price pressures from trade wars and Middle Eastern conflict are not lost on Main Street.The monthly University of Michigan survey found consumer sentiment dropped about four points to hit 51.7 for August, more than 11 points lower than it was a year ago. The survey’s “current conditions” and “expectations” segments also dropped by about the same monthly measure.“With ongoing policy uncertainty including the Iran conflict, consumers anticipate further increases in gasoline prices both in the short and long run,” Joanne Hsu, the survey’s director, said in a statement, adding consumers “are increasingly worried that prospects elsewhere in the economy could be weakening.”Earlier in the week, the Conference Board’s survey dipped down nearly a point for August, with the “expectations” segment falling by nearly six points despite consumers somewhat more optimistic about the “present situation” than in July.In its own quarterly index, the National Federation of Independent Business found small businesses are more optimism than in April, led by increases in earnings among manufacturing firms and the service sector. However, nearly two-thirds of respondents reported supply chain disruptions, with 84% of wholesalers saying those disruptions were prevalent.“While most metrics improved, many owners are reporting supply chain disruptions and difficult finding qualified employees,” said Holly Wade, executive director of NFIB’s Research Center. “Despite some challenges, Main Street is feeling more confidence about economic conditions and the health of their business.”Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads