Uptick in CPI inflation complicates case for rate cuts

Inflation continued to rise in June, driven by rising costs of housing and suggesting the Trump administration’s emerging tariff policy is beginning to impact consumer prices. 

The Bureau of Economic Analysis reported that the Consumer Price Index increased 0.3% in June for an annualized climb of 2.7%. Core CPI, which factors out food and energy prices, grew 0.2% last month and 2.9% year over year. This month’s readings were relatively in line with economists expectations, but core CPI came in a tick below expectations.

The report complicates any effort by the Federal Reserve to reduce interest rates, indicating that inflation remains well above the central bank’s 2% target. President Trump’s tariff negotiations remain fluid as the administration last week postponed a raft of reciprocal tariffs until Aug. 1. With the effects of tariffs still in question, June’s inflation reading is unlikely to convince the central bank that conditions are ripe for rate cuts. 

Fed Chair Jerome Powell has remained firm that the central bank will look to hard economic data to inform its monetary policy stance, despite increasing pressure by President Donald Trump and others in his administration to cut interest rates as soon as possible.

Fed minutes show focus shifting to employment

“We went on hold when we saw the size of the tariffs and when essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs,” Powell said earlier this month. “So we didn’t overreact. In fact, we didn’t react at all. We’re simply taking some time, as long as the U.S. economy is in solid shape, we think the prudent thing to do is to wait and learn more and see what those effects might be.”

Powell was noncommittal about cutting rates at the next Federal Open Market Committee meeting later this month, saying economic indicators like unemployment and inflation would guide its actions meeting-by-meeting. 

“The general consensus is that there will be likely at least one rate cut this year, maybe multiple, which will probably happen either in September or in one of the last two meetings in [October or] December,” said Charlie Wise, senior vice president and head of global research and consulting at TransUnion.

The June report pushes against Trump’s effort to slash rates, though. The president has become increasingly persistent in his efforts to pressure Powell into lowering interest rates in recent weeks. 

Fed Gov. Christopher Waller and Fed Vice Chair of Supervision Michelle Bowman, both potential candidates for Powell’s job, have made the case in recent weeks that rate cuts could come as early as July. 

Over the weekend, Trump announced a 30% tariff on goods from Mexico and all 27 European Union member states, which are slated to take effect on Aug. 1. With the Trump administration still rolling out new tariffs, FOMC members may feel more inclined to hold off on rate cuts.