The Fed's Stagflation Trap

The Federal Reserve heads into its July 28-29 FOMC meeting with its dual mandate in open conflict. Headline CPI stands at 3.5% year-over-year and PPI at 5.5% year-over-year, both well above the Fed's 2% target. Meanwhile, June nonfarm payrolls came in at just 57,000 versus a 115,000 consensus, while labor force participation dropped to 61.5%, its lowest since March 2021. Chair Kevin Warsh holds the federal funds rate at 3.50-3.75%. Markets assign an 83% probability to a hold and 17% to a 25 basis-point hike, per Kalshi prediction markets as of July 24. Key Takeaways June nonfarm payrolls rose only 57,000, missing the 115,000 consensus by 51%, with April and May revised down a combined 74,000…