Incoming U.S. inflation signals are offering the Federal Reserve little or no justification to resume interest rate cuts, and it's hard to see that changing before September. Following an unscheduled visit to the Fed last week, President Donald Trump said he thinks the Fed may be ready to lower rates again. To be sure, at least two of his appointees to the Fed board - Christopher Waller and Michelle Bowman - have indicated they might vote for a cut as soon as this week. Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here. Advertisement · Scroll to continue Report This Ad But they may be alone. Markets certainly remain unconvinced. Futures pricing shows virtually zero chance of a move on Wednesday and only a 70% chance of a cut at the following meeting in September. Markets now even doubt we'll see two rate cuts this year - the median of Fed policymakers' forecasts published just last month. A line chart showing the midpoint of the targeted midpoint for the federal funds rate and the implied rate of futures contracts. A line chart showing the midpoint of the targeted midpoint for the federal funds rate and the implied rate of futures contracts. While some clarity on the uncertain trade picture should emerge from this Friday's deadline, the effective overall import tariff rate is still set to be almost 20% higher than at the start of the year. And the impact from that may take months yet to filter through. But there are enough other signals that higher import levies and a weaker dollar are already irking the U.S. price picture, at least enough to keep the Fed wary. As it stands, inflation remains well above the 2% target, and long-term market inflation expectations, now the highest of any G7 country, are above target too and creeping up. Advertisement · Scroll to continue Report This Ad Long-term US inflation expectations highest in G7 Long-term US inflation expectations highest in G7 The Fed's favored inflation gauge, from the personal consumption expenditures basket, is due for release on Friday, and the annual core rate excluding food and energy is expected to be 2.7% - the same as last month. A line chart titled "Annual change in US Personal Consumption Expenditures Price Index" that compares two key inflation metrics over the past five years. A line chart titled "Annual change in US Personal Consumption Expenditures Price Index" that compares two key inflation metrics over the past five years. Consumer price inflation data for the month that has already been released shows pockets of price pressure in key areas affected by the limited tariffs enacted so far. Producer price data was more subdued, but that series doesn't include imported goods. Moreover, manufacturing firms last week continued to show outsized gains in input prices in July. S&P Global's monthly survey of purchasing managers registered an input price reading of 64.6, still far above the 50 threshold between expansion and contraction. Unlike the PPI, that captures imported inputs. By contrast, European manufacturers registered an equivalent input price reading of 49.9. 00:53 Market Rundown: Trump cuts a trade deal with Europe
The video player is currently playing an ad. You can skip the ad in 5 sec with a mouse or keyboard US manufacturers' report much faster input price rises vs Europe US manufacturers' report much faster input price rises vs Europe EARNINGS NOISE Tariff-related readouts from the roughly one-fifth of S&P 500 companies that have reported second-quarter updates have been noisier. But economists warn that two aspects of the earnings season could potentially be disguising the tariff impact. The first is significant front-loading of imports in the first quarter to beat the tariffs, the enormous scale of which led to a small GDP contraction in the first three months of 2025. As that tariff-free inventory is run down, costs should rise as tariffs begin to hit. The hiatus may have allowed many firms to keep prices steady or avoid taking significant margin hits through the second quarter.
