Federal data shows that inflation held fairly steady in July, defying fears of a sharp tariff-driven spike in consumer prices and good news for President Donald Trump, who is pushing for the Federal Reserve to slash interest rates.
Markets are widely anticipating a rate cut at the Fed’s September meeting, an assessment unlikely to be moved by the July inflation data. But the trend does give some analysts cause for concern about the outlook for prices.
The U.S. Bureau of Labor Statistics said its Consumer Price Index (CPI) measure of inflation increased by 0.2 percent on the month in July, a little slower than June’s 0.3 percent reading.
Annually, CPI inflation rose by 2.7 percent in July, the same reading as the previous month. But Core inflation—a measure widely watched by economists, which strips out volatile food and energy prices—rose to 3.1 percent in July, up from 2.9 percent.
So far, an increasingly divided Federal Reserve’s Board of Governors has resisted cutting rates to wait for more data over the summer on the impact of tariffs on consumer prices. Price increases have been modest so far.
Still, stubbornly high inflation puts the Federal Reserve in a difficult spot: Hiring slowed sharply in the spring, after Trump announced tariffs in April. The stalling of job gains has boosted financial market expectations for an interest rate cut by the central bank.
Fed Chair Jerome Powell has warned that worsening inflation could keep the Fed on the sidelines—a stance that has enraged Trump, who has defied traditional norms of central bank independence and demanded lower borrowing costs.
“CPI was in line with expectations, but the trend is heading in the wrong direction,” said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, in a post on X.
“It may not prevent a rate cut by the Fed in September, because policy is ‘restrictive’ but progress toward 2% inflation appears to have stalled.”
Brian Jacobsen, chief economist at Annex Wealth Management, told Reuters that the “core message in core inflation is that any tariff-induced inflation is likely to be a process, not an event.”
“Eventually, tariffs can show up in varying degrees in consumer prices, but these one-off price increases don’t happen all at once. That will confound the Fed and economic commentators for months to come,” he said.
“As long as breakeven inflation rates and other market based measures of inflation expectations stay contained, the Fed should feel comfortable enough to recommence cutting in September.”
Tuesday’s data arrives at a highly-charged moment for the Labor Department’s Bureau of Labor Statistics (BLS), which collects and publishes the inflation data.
Trump fired Erika McEntarfer, then the head of BLS, after the August 1 jobs report also showed sharply lower hiring for May and June than had previously been reported.
The president posted on social media Monday that he has picked E.J. Antoni, an economist at the conservative Heritage Foundation and a frequent critic of the jobs report, to replace McEntarfer.
“E.J. will ensure that the Numbers released are HONEST and ACCURATE,” Trump said on Truth Social.
Adding to the BLS’s turmoil is a government-wide hiring freeze that has forced it to cut back on the amount of data it collects for each inflation report, the agency has said.
UBS economist Alan Detmeister estimates that BLS is now collecting about 18 percent fewer price quotes for the inflation report than it did a few months ago. He thinks the report will produce more volatile results, though averaged out over time, still reliable.
Americans are likely to absorb more trade-war costs in the coming months as Trump begins to finalize tariffs. Once businesses know what they will be paying, they are more likely to pass those costs to customers, economists say.
This is a breaking news story. Updates to follow.
This article includes reporting by The Associated Press.
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