Fed's Interest Rate Decision Clear After Latest Inflation Data
Trump’s latest tariff threats could bring more of the same unless trade deals are struck.
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As we make our way through Tuesday morning’s earnings calls from JPMorgan Chase JPM, Citigroup C and Wells Fargo WFC, let’s examine the morning’s June Consumer Price Index (CPI) report that showed headline and core inflation ticking higher month over month.
After reviewing the June PMI data from ISM, we suspected this would be the case, and in looking at the headline June CPI figure of 2.7%, it’s up from 2.4% in May, but it is also the highest reading since February’s 2.8% figure.
Looking at core CPI, here too, the June figure of 2.9% stepped up compared to the 2.8% figure of the prior three months.
These are not the kind of figures that are going to spur the Fed into rate-cutting action near term, and from our perspective, it solidifies a July rate cut being off the table despite what some Fed heads have said recently. It also speaks to Fed Chair Powell's comments about the impact of tariffs working their way through the system.
At the same time, the renewed tariff uncertainty we’ve talked about when it comes to corporate guidance being issued in the coming weeks is also likely to give the Fed another reason to take a wait-and-see approach with rate cuts.
Think of it this way: Looking at the headline and core CPI figures above, we’re starting to see the flow through of higher prices associated in part with tariffs. If trade deals with the European Union, Mexico and others are not inked ahead of the August 1 deadline, as it stands now, we should expect to see President Trump move forward with his recent tariff increase threats. Such added inflation pressures could be a reason for the market to rethink September or later rate cut expectations.
Given the multiple implications, progress on trade deals or the lack thereof will be a key development we’ll be tracking closely over the next few weeks. Based on what we learn, we’ll adjust the Portfolio as needed.
