Softer inflation readings have yet to dispel concerns over price pressures simmering in the U.S. Reactions to weaker-than-expected June inflation were generally hawkish among Federal Reserve officials, underscoring that price volatility remains a risk to the outlook. Tensions in the Middle East have recently pressured oil prices again, lifting Brent crude above $100 a barrel on Thursday after two tankers were reportedly attacked in the Red Sea. Also, supply constraints related to the AI spending spree have persisted, a tightening labor market could drive up wage inflation, and news reports said the Trump administration might impose fresh tariffs after a temporary 10% global duty expires on July 24. The Fed will attempt to strike a balance between these forces and the latest inflation indicators when policymakers meet next week. Reflecting oil’s sharp rise in early trading on Thursday, the benchmark 10-year Treasury yield eclipsed 4.7% to hit its highest mark since January 2025. The European Central Bank, which delivered a hike after its last meeting in June, left interest rates unchanged on Thursday.

Meanwhile, competition in the AI race gave markets a jolt heading into the week. Mirroring the launch of DeepSeek in early 2025, new AI models from China-based Moonshot AI and Alibaba renewed concerns that cheaper and customizable models could knock frontier AI developers and chipmakers.

PGIM’s Weekly View from the Desk evaluates recent price data, the potential path ahead for inflation, and how the Fed might respond.