U.S. Inflation Rises Slightly in June, Keeping September Rate Cut Hopes Alive
U.S. consumer prices grew at a slightly faster annual pace than expected in June, but the increase was modest enough to reinforce market expectations for a potential Federal Reserve interest rate cut in September. The data arrives as economists continue to evaluate the inflationary impact of President Donald Trump’s aggressive tariff policies.
According to the Labor Department, the consumer price index (CPI) rose 2.7% year-over-year in June, above the 2.6% forecast and May’s 2.4% reading. On a monthly basis, CPI rose 0.3%, matching expectations and marking a pickup from 0.1% in May.
Core CPI, which strips out volatile food and energy prices, also accelerated slightly—up 2.9% annually and 0.2% month-on-month. However, both measures fell short of consensus forecasts of 3.0% and 0.3%, respectively.
Price increases were seen in categories such as household furnishings, healthcare, recreation, apparel, and personal care, while declines in new car prices and airfare helped offset broader inflationary pressures.
Although CPI is not the Federal Reserve’s preferred inflation gauge, its trajectory still plays a role in shaping monetary policy. Fed Chair Jerome Powell has cited lingering uncertainty over inflation trends as justification for holding rates steady—an approach that has drawn sharp criticism from President Trump, who continues to push for swift rate cuts and has reportedly considered replacing Powell with someone more dovish.
Following the CPI release, traders increased their bets on a 25-basis point rate cut in September, according to the CME FedWatch Tool, with markets now pricing in two cuts by the end of the year.
Some economists warn that Trump’s proposed “reciprocal” tariffs, set to take effect August 1, could add upward pressure on inflation while also hurting economic growth.
However, analysts at CIBC Economics noted that the impact of tariffs on consumer prices has so far been muted, as many firms have preemptively boosted inventories to cushion the blow.
“Those inventory buffers are now thinning,” CIBC said in a note, “and we expect to see more tariff passthrough ahead, which could keep the Fed cautious about near-term policy shifts.”
