The latest preliminary data from the University of Michigan’s Consumer Sentiment Index shows a modest uptick in July, rising from 60.7 to 61.8 and slightly beating expectations of 61.5. While this is a sign of resilience among U.S. consumers, sentiment remains cautiously optimistic amid persistent concerns about inflation and trade policy. Survey Director Joanne Hsu emphasized that long-term consumer confidence hinges on the stabilization of inflation, noting that a consistent trade policy could be a key factor in restoring economic assurance. Reflecting these concerns, the survey revised inflation expectations downward, with long-term (five-year) inflation now projected at 3.6% down from 4% and short-term (one-year) expectations at 4.4%, a notable decline from the previous month’s 5%. These improved inflation outlooks align with some cooling indicators in the broader economic landscape, although signs remain mixed. Consumer Price Index (CPI) data is inching closer to the Federal Reserve’s 3% target, while the Producer Price Index (PPI) dipped, suggesting easing cost pressures for businesses. However, stronger-than-anticipated retail sales data raised questions about the underlying drivers, with most of the growth attributed to price increases spurred by tariffs imposed under President Trump’s evolving trade strategy. As the economic implications of these tariffs begin to ripple across consumer goods and business costs, the pressure remains on policymakers to weigh their next steps carefully. On the monetary policy front, Fed Governor Christopher Waller acknowledged strength in the overall labor market, though he flagged slowing momentum in the private sector. While expressing support for a potential rate cut during the upcoming July Federal Open Market Committee (FOMC) meeting, Waller avoided committing to a specific decision ahead of time. Market participants appear to be aligning with a more cautious stance; interest rate futures reflect a 94% probability that the Fed will hold rates steady on July 30, with just a 6% chance of a 25-basis-point cut. Meanwhile, U.S. Treasury yields declined modestly, with the benchmark 10-year yield falling three basis points to 4.421%, offering some near-term support to gold prices given the inverse correlation between yields and the precious metal. Still, risk appetite remains under pressure as investors grapple with geopolitical uncertainties and a shifting trade landscape. Although inflation metrics show signs of improvement, the specter of unpredictable tariffs continues to cloud the economic outlook. With confidence slowly rebounding and inflation expectations beginning to ease, markets are now turning their focus toward the upcoming consumer inflation print and the Fed’s July policy decision to gain clearer insight into the trajectory of monetary policy for the remainder of 2025. Unlock your trading potential with expert-led courses from MJFXM – your trusted partner in financial education.