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A Labor-Fueled Inflation Spike Ahead?
The Macro Institute's Weekly Economic Primer
The Macro Institute
July 07, 2025
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This is one of the lightest data weeks we’ve seen in a while. Aside from Tuesday’s NFIB Small Business Survey and Wednesday’s FOMC Minutes, it’s quiet on the macro front.
Last week the story was laser focused on employment.
June payrolls beat expectations, but the real story lies in the details:
The "foreign born" labor force shrank for the third month in a row. It’s tough to draw hard conclusions from this, but it suggests that stepped-up deportations are having an impact.
The unemployment rate ticked lower pointing to a tighter labor market.
That matches the signal from the Quits Rate in the JOLTS report and the “few or no qualified applicants” reading from NFIB.
Bottom line? If these trends hold, wage inflation could be set to reaccelerate.
More to come. Stay tuned.
The Macro Week In Review
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The Macro Week Ahead
💳 The Summer of Fiscal Dominance
While most of us were off for July 4th, President Trump signed what will likely be the defining policy of his administration: the $3.3 trillion “Big, Beautiful Bill.”
For macro investors, two things matter:
The 2017 TCJA tax cuts are now permanent.
The debt ceiling just ballooned by $5 trillion.
So much for fiscal discipline. Despite early signs of restraint, from DOGE to tariffs, the final bill tacks on another $3 trillion in deficits through 2034. The Tax Foundation estimates it’ll boost GDP by 1.2% and add 938k jobs. But the cost? Another chapter in America’s fiscal free-for-all.
🙏 Trade: Calm Now, Storm Coming?
Markets have been riding a wave of trade optimism, but that might not last.
President Trump is prepping tariff letters to 10–12 countries for an effective date of August 1st . He says rates will range from 10–70%, possibly even higher than the Liberation Day shock. If that holds, it seems markets are underpricing trade risk given that investors have largely looked past the new global trade regime.
📈 Rates: Reality Check Incoming
Our view is that the next move in interest rates is higher, but markets were getting very comfortable with the idea of Fed cuts. Last week’s data snapped them out of it.
Job openings surged to 4.6%
Unemployment fell to 4.1%
ISM Prices Paid matched this cycle’s highs at 69.7
The result? Odds of a September rate cut dropped from 92.5% to 68.5% and the 10-year yield jumped from 4.23% to 4.35%.
The Fed meets again on July 30. By then we’ll have June CPI, PPI, and preliminary July data. Expect rate volatility between now and then.
📅 The Week Ahead
It’s a VERY quiet week on the data front.
Tuesday kicks off with the NFIB Small Business Survey with similar expectations to last month. This survey, especially the “single most important problem” subcomponent, is a useful read-through for small business earnings and inflation sentiment, particularly as smaller firms struggle with tariff costs.
The NY Fed’s 1-Year Inflation Expectation is also on Tuesday. Last month’s reading was 3.2%. It’s not something we usually track closely, but consumer surveys on inflation have been coming in all over the place. This reading is sandwiched between the University of Michigan’s peak of 6.6% and the implied 1-Year inflation rate (breakeven pricing) around 2.6%. The Fed uses all of it, but Core PCE remains their north star, which was revised upward to 3.1% in the latest Summary of Economic Projections.
Markets are pricing in roughly 75% odds of two rate cuts by year-end. That seems too dovish in our opinion.
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