Financial analyst Suliman Mulhem has reiterated his warnings about the state of the U.S. economy, cautioning that the Federal Reserve risks falling behind if it continues to underestimate labour market weakness.

On July 30, just before the last Federal Open Market Committee (FOMC) meeting and prior to the significant downward revisions in jobs data,
Mulhem warned in an interview with CryptoDaily that the labour market was far weaker than the Fed believed.

At the time, he urged the Fed to deliver a 25bps rate cut and said that delaying action would leave officials with little choice but to implement a larger 50 basis point (BPS) cut in September.

He also called for the Fed to take a more nuanced approach to recent price pressures, urging policymakers to implement a “tariff-inflation exclusion” framework and treat current tariff-induced inflation as transitory.

CPI and PPI Data in Focus

Speaking this week ahead of the release of Producer Price Index (PPI) and Consumer Price Index (CPI) data, Mulhem acknowledged market concerns that July’s sharp PPI rise of 0.9% might spill into consumer prices, but he had a more optimistic view.

“Although the market is concerned about last month’s PPI read of 0.9% spilling over into this month’s CPI data – as PPI often indicates inflation in the pipeline on its way to consumer goods – I am expecting a relatively benign CPI read of around 0.2%-0.3% on Thursday,” Mulhem said.

He explained that many businesses appear reluctant to pass higher costs onto consumers, instead absorbing tariff-related price increases themselves.

“I believe businesses are likely to continue to eat most of the tariff-induced inflation rather than try to pass the bulk of the cost increases onto consumers, due to firms having relatively low pricing power at the moment.“

Fed’s Inflation Dilemma

Mulhem stressed that the Fed will not only be watching headline inflation figures but will also closely track categories unaffected by tariffs.

“Aside from the headline month-over-month and year-over-year inflation figures, the Fed will also be closely monitoring the price change of services and goods not impacted by tariffs, as inflation in these areas will concern the FOMC as it shows more widespread, untargeted inflation,” Mulhem noted.

Calls for a 50bps Cut

Looking ahead to the September FOMC meeting, Mulhem said that if CPI and PPI readings confirm inflation remains largely contained to tariff-affected goods, a decisive 50bps rate cut should follow.

“If this month’s PPI and CPI releases do not show substantial inflation outside of goods that are directly affected by tariffs, I expect the FOMC to cut the federal funds rate by 50bps at its next meeting later this month.

“I believe a 50bps cut in September would be the right move, but it remains to be seen if it will be enough to make up for the FOMC’s mistake of not cutting in July amid their misguided belief in the strength of the labour market,” he concluded.

The bond market is currently pricing in just an 8% chance of a 50bps cut at the September FOMC meeting, according to CME FedWatch data.