The Federal Reserve has a dual mandate – keep prices stable (ie: fight inflation) and maintain full employment (ie: stabilize the labor market). In the past week, we received reports on both of these fronts.

Last Friday, the July jobs report was released. Surprisingly, the US economy reported a loss of 23,000 in July. Expectations had been a gain of ~90,000 jobs. Local government and retail showed the most job losses and health care remains a major contributor of job gains. The Bureau of Labor Statics also revised prior months down by 103,000 jobs, signaling further weakness below the surface.

The headline number points to a labor market that is losing momentum – and the prior month revisions add to that narrative. However, the unemployment rate told a different story. Despite the weak payroll print, unemployment fell (another 0.10%) – something you would not expect as jobs also declined. The change was due to a shrinking labor force as participation continued to moved lower.

This month’s jobs report was a surprisingly negative read on employment in the US. The report shows that the job market is no longer reaccelerating – but it didn’t go so far as to point to enough downside risk to make employment risks the Fed’s dominant concern. Inflation remains the top issue of the dual mandate – and we received updates on that side of things this week.

A look at retail prices came first as the Consumer Price Index (CPI) was released on Wednesday. Prices rose 0.1% for the month, putting the annual rate at 3.4%. Respective core readings were 0.2% and 2.5%. Notably, gas prices declined in July but are on the rise again in August.

Looking at all the retail inflation data, you now have core inflation running right where it was prior to the U.S. and Israel attack on Iran in late February. That’s a pretty simple narrative: Were it not for all the turmoil in the Middle East, inflation outside of food and energy — especially the latter — would be heading right back to target.

Wholesale prices were also benign with Thursday’s Producer Price Index (PPI) report. Wholesale prices were flat in July compared to an anticipated 0.2% increase. Core PPI rose 0.2%, below 0.3% expectation. On an annual basis, PPI increased 4.7% and 4.2% for Core. This report tells a similar story to CPI – that after a ramp up in inflation earlier this year fueled by the Middle East and Trump’s tariffs, the rate of price increases is beginning to ease.

Both of these inflation reports – as well as the labor report – seemed to ease market’s concern that the Federal Reserve would need to increase rates in the near term. As of late Wednesday, markets were pricing in just a 38% chance of an increase, down 10 percentage points from Tuesday and well below the 70% or so probability of a month ago.

Of course, there remains a considerable amount of time (and data) before the next Fed meeting in September – so stay tuned. But for now, both sides of the dual mandate – while not ideal – aren’t yet causing enough problems to spark alarm.

Onward we go,