US Economics Weekly: Dovish data and Fed contradict hawkish market

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31 Jul 2026 11:00:52 ET │ 20 pages

US Economics Weekly

Dovish data and Fed contradict hawkish market

CITI'S TAKE

The Fed’s decision to hold rates steady and Chair Warsh’s dovish comments

led to volatility in markets that had run with a hawkish narrative

disconnected from data and the Fed official consensus. In 2021 and 2022

Fed credibility was damaged when Fed officials (joined by many

economists) sought to dismiss broad-based demand-driven inflation as

“transitory.” Five years later, credibility cannot be regained by hiking despite

most measures of underlying inflation now slowing toward target. Core PCE

is a clear outlier amongst other inflation metrics, something Chair Warsh

indicated will figure into Fed thinking. The cooling inflation backdrop will be

increasingly hard to ignore in coming months, keeping rate hikes this year

unlikely.

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Andrew Hollenhorst AC

Veronica Clark AC

With thanks to

Hanmu Zhang