Don’t get too excited about the Federal Reserve cutting rates anytime soon after the latest U.S. inflation report. The consumer price index rose 0.3% month over month and 2.7% year over year, both in line with a Dow Jones consensus. So-called core CPI, which strips out food and energy, rose 0.2% month over month — offering some hope of easing inflation. That said, core CPI’s year-over-year increase of 2.9% also matched expectations. Investors came into the report hoping it would raise the chances of the Fed lowering rates soon. The opposite happened. The CME Group’s FedWatch tool shows odds for a 25 percentage point rate cut in July fell to just 2.6%. That’s down from 6.2% a day prior and 23% a month ago. For September, the odds of a rate cut now stand at 59%. Still, stocks showed some strength in early trading, thanks to gains Nvidia is making. But, that summer Fed rate cut is becoming even more elusive. Take a look at what strategists and investors on the Street had to say about the latest CPI report. Ryan Weldon, portfolio manager at IFM Investors: “The slight reacceleration of inflation seen in the June core CPI print will remove any expectation of a July cut, reinforcing the Fed’s cautious approach to resuming cuts to its policy rate. There is decent market speculation that the tariff impact will truly begin to show in the July and August data, which would likely raise the threshold for the Fed to cut in September. The recently announced tariffs from the Trump administration, commencing on August 1st, will inject additional uncertainty and volatility into the market during the typical slow summer months as countries scramble to negotiate trade agreements with the US or implement their own retaliatory tariffs.” Seema Shah, chief global strategist, Principal Asset Management: “The Fed’s ability to cut rates was resting heavily on today’s inflation print. With inflation coming in softer than expected for the fifth month in a row, it may initially seem like there is still little sign of the tariff induced boost to inflation that the Fed has been expecting. However, with increases in categories like household furnishings, recreation, and apparel, import levies are slowly filtering through to core goods prices. Indeed tariffs typically take several months to feed through to inflation data, while the significant front loading of imports implies that few goods may have been subject to tariffs yet. And while any tariff induced boost to inflation is likely to be short-lived, with higher tariffs being announced it would be wise for the fed to remain on the sidelines for a few more months at least.” Kay Haigh, global co-head of Fixed Income and Liquidity Solutions in Goldman Sachs Asset Management: “While today’s CPI release showed some early signs of tariff impact, on the whole underlying inflation remained muted. Price pressures, however, are expected to strengthen over the summer and the July and August CPI reports will be important hurdles to clear. For the time being the Fed remains in wait and see mode. Should underlying inflation, however, continue to prove benign the path remains open to a resumption of the Fed’s easing cycle in the autumn.” Bret Kenwell, U.S. investment analyst at eToro: “Today’s CPI report was mostly in-line with expectations. The only problem is that those expectations had called for a rise in inflation, with year-over-year inflation rising 2.7% and hitting its highest level since February. … Today’s inflation report all but dashes any remaining hopes that the Fed may cut interest rates at its meeting later this month. However, if subsequent inflation readings reiterate the rise in inflation, it could jeopardize future rate cuts as well.” Skyler Weinand, chief investment officer at Regan Capital: “While it’s a relief to see Tuesday’s CPI in-line with expectations, it still showed that inflation was hotter in June than it was in May. With Tuesday’s inflation data, we are now even further from the Fed’s 2% target, which means the Fed is in no position to cut interest rates until at least September.”
