What the Fed Will Want to See in the Data

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While trade talks have dominated the narrative this year, the Federal Reserve has remained focused on reaching its 2% inflation target. In your opinion, what will the Fed need to see in the data to justify cutting interest rates?

When it comes to inflation and tariffs, the Federal Reserve’s big concern is building confidence that tariff-related inflation is transitory – meaning that tariffs boost inflation over the next year or so, but not indefinitely. In fact, in his latest press conference, Fed Chair Jerome Powell said the Fed will make sure that tariff inflation is transitory.

One way tariffs could have a persistent effect on inflation is by making companies less efficient, adding to costs. This includes creating inefficiencies in supply chains and reducing the money available for productivity-enhancing investment. There’s also an inflation expectations component, where tariffs might create an expectation of persistently higher inflation, which can create a feedback loop where consumers expect higher prices so they demand higher wages adding to costs for businesses, increasing prices.

So they’ll likely want to see price increases over the coming months largely restrained to categories of goods that are most reliant on imports, and are then most exposed to tariffs. But if we see more broad-based price increases continuing well into 2026, that will be concerning since tariffs alone wouldn’t explain that.

Of course, the Fed has a dual mandate. So it has to balance its inflation target with its full employment mandate, and the labor market seems to have softened noticeably in the last few months, so the evolving employment picture will play a big role in the Fed’s decision to cut rate. As Chair Powell noted last month, the Fed will get another month of jobs and inflation data ahead of its September meeting.

You also played an important role in the creation of Nasdaq's IPO Pulses for the U.S. and Stockholm. How did you and the team decide on the six factors that show directional shifts in IPO activity?

In creating both of the IPO Pulses, we tested dozens of series. But the first hurdle in selecting a series to test was that there should be a theoretical justification for it to be a leading indicator of IPO activity. After that, we would test it to prove its empirical worth. For example, both IPO Pulses use valuations as a component. The theoretical justification is that, if valuations are rising, that should make going public more attractive to a company since it should be able to IPO at a better valuation. Then, empirical testing showed that to be true.

We also wanted to cover a wide range of factors that could anticipate IPO activity. So that’s why we settled on measures of valuations, returns, interest rates, sentiment, volatility, and Nasdaq’s proprietary data. Since the launch of the IPO Pulses, these have remained effective leading indicators of IPO activity.

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