Outlook | 18 August 2025
- Edward von der Schmidt
- Aug 18
- 4 min read
A discussion of key themes in the week ahead.
Inflection Points - Ukraine and the Fed
Friday's "productive" Trump-Putin summit in Anchorage failed to bring a ceasefire or any immediate consequences for Russia's continued invasion of Ukraine. While the US administration has eschewed secondary sanctions on China and other Russian oil importers (save India) and has pivoted to embrace Putin's call for a comprehensive "peace agreement", pushback from Zelenskyy and European leaders has prompted discussion of terms integral to the prospect of a mutually acceptable deal. An Oval Office meeting on Monday between Trump and Zelenskyy and an East Room gathering that will include European heads of state will guide Ukraine's fate, define the strength of the NATO alliance, and set the course for continental (in)stability.
The essential trade-off will be territory versus security. Russia is seeking land concessions including the entirety of the industrial Donbas region - even areas that are not currently under its control. Ukraine and its European allies have insisted that negotiations begin with the so-called line of contact represented by the active front. Constitutional prohibitions on the formal ceding of sovereign territory aside, Ukraine's principle concern is that Donetsk will be used as a staging ground for future assaults (as Crimea was) once Russia has had time to regroup. Importantly, however, de facto recognition of Russian advances does not appear to be off the table. Regardless, security assurances will be necessary for any semblance of a lasting peace.
In that vein, US special envoy Witkoff has asserted that Russia would be willing to allow for Article 5-like security guarantees (i.e., an attack on one is an attack on all) - provided that Ukraine be precluded from formally joining NATO. What such an arrangement looks like in practice when the transatlantic alliance itself has appeared tenuous is unclear and may be clarified shortly. At a minimum, Ukrainian troops and European financing would need to be accompanied by US intelligence, munitions, and air support. A decision to come to Ukraine's aid in the event of a resumption of hostilities would need to be credible in order to deter future incursions. For now, Russia has allegedly promised to attest that it will not infringe upon the sovereignty of its European neighbors. This may ring hollow.
Geopolitical theater will invariably dominate the news cycle, but this week may also mark an inflection point for the Federal Reserve. Another set of Fed speaking engagements will be punctuated by the Wednesday release of the July FOMC meeting minutes and will be capped by Chair Powell's speech on Friday at the annual Jackson Hole Economic Policy Symposium. Although the July employment report raised fears of unanticipated labor market weakness, not all FOMC voters are convinced. Retail sales strength and a large upside surprise in wholesale prices hinted at continued economic resilience and latent inflationary pressures. Just because the Fed is prepared to adjust rates in the near future does not mean that they will do so September.
Forthcoming data releases may sufficiently influence the narrative and policy context prevailing at the time of the meeting to keep the Fed on hold for a bit longer - a severely underpriced risk in markets. The minutes may reveal the extent to which labor market concerns were already prevalent at the July FOMC, when the Fed did not commit to a September move. The shift toward monitoring unemployment rates in lieu of tepid payrolls growth suggests that the bar for deeming labor markets sufficiently "weak" may be high when inflation is above target and trending the wrong way. As insightful as the minutes may be in highlighting the employment vs. inflation debate, Chair Powell could speak to difficult policy trade-offs directly in Wyoming. If inflation is still the bigger problem, will Powell stand on principle or bend to political pressure?
Here are three areas I will pay attention to this week:
1) Trump-Zelenskyy
A host of European leaders will join Ukrainian President Zelenskyy in a show of unity at the White House on Monday. Unable to wrest concessions from Russia, will President Trump continue to demand that Ukraine yield instead? Will there be enough of a consensus to merit a trilateral conference between Trump, Zelenskyy, and Putin? Will the US definitively signal its abandonment of decades-old alliances and national security concerns in favor of commercial expedience?
2) FOMC Minutes, Earnings, and Data
Though backward-looking, the FOMC minutes are still the best insight into Fed debates until the release of official transcripts. Chair Powell likely had advanced notice of that Friday's payrolls data when he kicked off the monetary policy debate on Wednesday morning and did not appear overly concerned at the press conference. Will the minutes reflect broader unease over labor markets beyond that of the dissenting voters? How did Fed staff and FOMC participants view the economic and financial backdrop at the time? Retailer earnings and flash PMI readings will also provide evidence of how the inflation and employment outlooks have evolved in the weeks since.
3) Jackson Hole
As far as non-FOMC meetings go, the annual research symposium hosted by the Kansas City Fed has brought its fair share of policy pronouncements. This year's conference theme is "Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy". If inflation were the only concern, the Fed would be in no hurry to adjust rates lower. Are labor markets really as weak as feared or has the shifting composition of supply and demand influenced the Fed's assessment of full employment? The answer to that question not only bears consequences for near-term policy but for the Fed's very independence.
Good luck,
Edward von der Schmidt