July jobs a litmus test for Fed credibility

US Economic Weekly July jobs: a litmus test for Fed credibility

Warsh was dovish. We remain hawkish 31 July 2026

Fed Chair Warsh’s July press conference offered little clarity and struck a dovish tone. In Economics response, long-end yields spiked, led by breakevens. Markets are questioning the Fed’s United States credibility. Ironically, we think the need to re-establish credibility increases the likelihood US Economics that the Fed will hike in September, all else being equal. Therefore, we remain BofAS comfortable with our forecast of 25bp hikes at each of the remaining three Fed Aditya Bhave meetings this year (see report: July FOMC review: Doved and confused). US Economist BofAS What’s next for Fed credibility?

The July jobs (Aug 7) and CPI (Aug 12) data are crucial. Soft data would validate Warsh’s Stephen Juneau US Economist dovishness. But if the data are firm, watch the yield curve. Flattening of the curve would BofAS mean markets still believe the Fed will do what it takes to meet its mandate. But if the curve were to steepen on strong jobs/inflation data, that would indicate the Fed is Shruti Mishra behind the curve, raising more serious questions about its credibility. Warsh will also US Economist BofAS have a chance to correct course, if he deems that necessary, at Jackson Hole (Aug 28). July jobs preview: Summer doldrums? Not yet See Team Page for List of Analysts We expect payrolls to rise by a below-consensus (but still firm) 80k in July (private: 95k). Benign claims data and steady labor market indicators point to continued job growth, Glossary though we see some downside risks from summer distortions, softer ADP data, and a CPI: Consumer Price Index potential reversal in local gov’t hiring. We expect the u-rate to round up to 4.3% as participation rebounds, though strong household employment could keep it at 4.2%. A PMI: Purchasing Managers’ Index

report in line with our forecast would reinforce the view that downside risks to the labor PPI: Producer Price Index market have largely faded, supporting our call for three hikes this year. NFP: Nonfarm payrolls The week ahead: A packed data calendar LFPR: Labor force participation rate Next week’s data calendar is packed. Besides the Jul jobs report (Fri), markets will focus on the Jul ISM manufacturing (Mon) and services (Wed) indexes, Jun JOLTS (Tue), Jul ADP PCE: Personal Consumption Expenditures (Wed), Jul Challenger job cuts (Thu), 2Q productivity (Thu) and Jul NY Fed inflation expectations (Fri). We’ll also be watching for auto sales (Mon) for an early read on Jul FOMC: Federal Open Markt Committee spending. In terms of Fedspeak, we’ll hear from Cook (Wed), Musalem (Thu) and Barkin GDP: Gross Domestic Product (Fri). Others might get added to the calendar, as we are just emerging from the blackout. SF: Seasonal Factor 2Q GDP and Jun PCE: Firm demand, modest inflation relief 2Q GDP came in below expectations at 1.5% q/q saar. However, final private domestic SA: Seasonally Adjusted

demand was up a strong 3.9%. Consumer spending and AI-related capex remain the big SEP: Summary of Economic Projections drivers of domestic demand. Spending surprised to the upside at 3.2% in 2Q, with solid gains in Jun and upward revisions to the Apr-May data. Meanwhile, Jun core PCE inflation MA: Moving Average was a bit softer than expected at 0.13% m/m (3.3% y/y). The Fed will need to see a HH: Household couple more such prints before it feels more comfortable about the inflation trajectory. U-rate: Unemployment Rate

JOLTS: Job Openings and Labor Turnover Survey

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July jobs: Summer doldrums? Not yet Shruti Mishra BofAS

• We expect payrolls to rise a still-firm 80k in July (private: 95k). Claims and other labor indicators remain consistent with continued job growth, despite some downside risks from summer distortions…