Fed Resurrects ‘Transitory’ Inflation View Despite Previous Missteps

The U.S. dollar weakened, driven by increasing expectations of Federal Reserve rate cuts and ongoing uncertainties surrounding recent U.S.-imposed tariffs. Following a disappointing U.S. jobs report, traders rapidly priced in a 94.4% likelihood of a rate cut in September. Market concerns were compounded by President Trump’s dismissal of a top statistics official and the resignation of Fed Governor Adriana Kugler.

Gold prices increased for the fourth consecutive session, supported by a weakening U.S. dollar and declining Treasury yields following disappointing U.S. employment data. Spot gold rose 0.1% to $3,375.89 per ounce, with futures also up by 0.1% to $3,430.40. The data heightened expectations for a Federal Reserve rate cut in September, now at 92%. Geopolitical tensions, including threats of tariffs on Indian goods, added to economic uncertainty, further boosting gold’s appeal.

Moody’s Analytics chief economist Mark Zandi warns the US economy is “on the precipice of recession” after last week’s alarming economic data. July payrolls grew by just 73,000, with massive downward revisions slashing May and June figures to 19,000 and 14,000 respectively. Consumer spending has stalled, construction and manufacturing are contracting, and core inflation rose to 2.8%. Zandi blames Trump’s tariffs and immigration policies for the downturn, noting that 1.2 million foreign-born workers have left the workforce in six months. With inflation still above target, the Federal Reserve will struggle to provide relief through rate cuts.

President Trump’s push for lower interest rates faces structural obstacles far beyond Fed Chair Jerome Powell’s control. The era of cheap money that lasted over three decades is ending due to powerful economic forces: retiring Baby Boomers are spending rather than saving, China has stopped recycling trade surpluses into US Treasuries, and massive government debt plus AI investments are driving up credit demand. Bloomberg Economics analysis suggests 4.5% may be the new normal for 10-year Treasury rates—a dramatic shift from the ultra-low rates that fueled housing and stock market booms. While Trump may appoint dovish Fed members, these deeper supply-and-demand