Latest / Finance TL;DR Daily / Wholesale Prices Stall, But a Fed President Wants Rates Higher Anyway
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- Wholesale Prices Stall, But a Fed President Wants Rates Higher Anyway 2026-08-13 Alex: Welcome to Finance TL;DR Daily, the podcast where we break down the biggest stories in finance. It's Thursday, August thirteenth. And today's big story is a wholesale inflation report that came in cooler than almost anyone expected, right as a sitting Fed president is publicly arguing rates need to go up, not down. Riley: A bit of a mixed signal, that. Here's what's moving today. Alex: So let's start with the number that's actually moving stocks this morning. The Producer Price Index, that's wholesale prices, what businesses pay before it hits store shelves, was flat in July. Zero percent. Economists were looking for a 0.2% increase. Riley: And flat beats a rise, in this context, because it suggests the pipeline of future inflation isn't building up the way people feared. Alex: Exactly. PPI tends to lead CPI, consumer prices, by a bit. So when wholesale costs aren't climbing, that's a decent sign retail inflation might cool down the road too. Riley: And the market reaction tells you everything. Equities pushed higher on the read, because a softer inflation trend narrows the case for the Fed to hike again in September. Alex: Right, this comes hot on the heels of June's PPI print, which actually showed prices falling 0.3%. So you've now got two months in a row where wholesale inflation isn't behaving like the villain everyone expected. Riley: Two data points is not a trend, mind you. But it's the direction that traders are leaning on. Alex: Fair caveat. And that direction is exactly what makes the next story so awkward. Riley: It is, because on the very same week, a Federal Reserve bank president stood up and said, actually, we should be raising rates. Cleveland Fed President Beth Hammack dissented at the July 28th and 29th policy meeting, arguing for a hike. Alex: And she wasn't alone in dissenting, just alone in wanting the opposite direction, correct? Riley: That's the interesting bit. The vote was 9 to 3 to hold rates steady in the 3.50% to 3.75% range. Two of those dissenters, Neel Kashkari and Lorie Logan, wanted things eased. Hammack wanted things tightened. Three different views on the same committee. Alex: What's her actual argument? Because on paper, inflation cooling in the PPI data would seem to undercut her. Riley: Her case rests on a different number entirely. The Personal Consumption Expenditures price index, the Fed's preferred inflation gauge, was running at 3.7% annually as of June. That's nearly double the 2% target, and it's been above target for more than five years now. Alex: Five years is a long time to call something transitory. Riley: Quite. And her statement made the point explicitly. She said now is the time for the Committee to, quote, speed the return of PCE inflation to our 2 percent objective. She also said she doesn't think current policy is appropriately restrictive, and that businesses are describing pricing pressure as broadening, not fading. Alex: Broadening is the word that jumps out there, because that's the opposite framing from what we just heard on wholesale prices. Riley: It is a genuine split in how policymakers are reading the same economy. One data point, PPI, says pressure is easing. Hammack's read from talking to businesses says it's actually spreading into more corners of the economy. Alex: So what does a listener take from having both of these in the same week? Riley: That the Fed isn't a monolith heading calmly toward a September cut. There's a real internal argument happening, and Hammack putting her name on a public dissent is a signal that if inflation data turns hot again, don't assume the committee will unite around easing. Alex: Worth watching whether other regional presidents start echoing her line before the next meeting. Riley: Right, let's move to something a little less contentious, and a lot larger in dollar terms. Databricks has closed a new funding round that values the company at $188 billion, roughly $190 billion as it's being reported. Alex: That is an enormous number for a company that isn't public. What's actually driving that valuation? Riley: This round was led by Coatue, and it comes just months after Databricks closed a prior $5 billion round in February at a $134 billion valuation, plus $2 billion in new debt capacity. So the valuation has jumped by more than 40% in under six months. Alex: That's a striking pace even by AI standards. Is the revenue actually backing that up? Riley: To a real degree, yes. As of the January quarter, Databricks was running at over $5.4 billion in annualized revenue, up 65% year over year. And its specific AI products alone are generating $1.4 billion of that annualized revenue. Alex: So it's not pure hype, there's genuine growth underneath it. Though I have to ask, at what point does staying private start to look like the strategy rather than a stepping stone? Riley: That's precisely the posture the CEO, Ali Ghodsi, has taken. He's said plainly that if this market correction hasn't bottomed out yet, they're happy to just continue as a private company. Alex: Which tells you something about how AI valuations are being priced right now, that a $190 billion private company sees no urgency to test public markets. Riley: It also puts pressure on rivals like Snowflake, who are competing for the same enterprise data and AI budgets, but doing it as a public company under a very different level of scrutiny. Alex: Let's shift to something with a much less exciting growth story, the federal budget. Riley: This one's a big miss on the fiscal side. The U.S. budget deficit for July came in at $432 billion. That's a record for the month, and the largest monthly shortfall since March of 2021. Alex: How does that compare with a year ago? Riley: It's $141 billion higher than July of last year, a jump of 48%. The government took in $334 billion in revenue against $766 billion in outlays. Alex: Those two numbers alone tell most of the story. Was there anything specific dragging revenue down? Riley: Yes, customs duties actually went negative. Tariff refunds totaled $33.38 billion for the month, which hurt the receipts side directly. Alex: So even with tariffs supposedly bringing money in over the longer run, in July they were a net drag because of refunds. Riley: Exactly right. And zooming out, the fiscal year to date deficit is now $1.799 trillion, which has already topped the full-year total for fiscal 2025 of $1.775 trillion, with two months still left to go. Alex: That's not a small overshoot, that's the whole year's number beaten early. Riley: It's pushed total federal debt held by the public up to $32.0 trillion. And the practical worry here is that more borrowing means more Treasury supply hitting the market, which can put upward pressure on yields. Alex: Which loops right back to our first story, because if yields creep up from heavier government borrowing, that's another variable the Fed has to weigh alongside inflation data when it thinks about rate policy in September. Riley: It all comes back to the same room, doesn't it. Alex: So to wrap it up, cooler wholesale prices are giving markets hope for a September cut, but a Fed president just made the public case for the opposite. Riley: And underneath all of that, private AI valuations keep climbing, while the government's own math keeps getting harder to square. Alex: This has been Finance TL;DR Daily. We'll see you tomorrow.