Tariff and services inflation are coming, says RBC's Frances Donald

Market Reaction & Rate Cut Probability - Market exuberance is noted, particularly in riskier, speculative market segments, following Powell's speech [4] - Market assigned approximately 80% probability of a rate cut in September prior to the speech, which increased to 85-86% during the conversation [4][5] - Market reactions should be considered, but the market is not always right [2][3] Inflation & Tariffs - Tariffs have begun to increase prices in some goods categories, with accumulating effects expected over the coming months [1] - Tariff inflation is likened to the "tariff Titanic" hitting the "inflation iceberg," suggesting significant impact [5] - Core inflation is projected to exceed 3% by year-end, influenced by both tariffs and service-side inflation [6] - The Federal Reserve acknowledges tariff inflation is coming through, as reflected in PPI (Producer Price Index) [11][12] Federal Reserve & Monetary Policy - Powell's speech emphasized balance, assessing both upside risks for inflation and downside risks for the labor market [2] - The Federal Reserve faces a dilemma balancing concerns about the labor market with rising inflation [7] - The Federal Reserve might not need to be as concerned about the labor market as expressed in the speech, given supply-side factors [7][8] - The Federal Reserve can choose to view inflation data differently and utilize various measures to justify a rate cut [12][13] Labor Market - The unemployment rate is at 42%, consistent with the rate a year prior [8]