US Inflation Set to Rise as Higher Tariffs Take Effect, Fed Officials Face Dilemma

US inflation is expected to rise in July as higher tariffs feed through to consumers, with core CPI likely up 0.3% from the previous month. Cheaper gasoline may offset the overall CPI gain, which is expected to be 0.2%. Higher tariffs have started to impact household furnishings and recreational goods, but core services inflation remains tame. Economists expect tariffs to continue feeding through, posing a dilemma for the Federal Reserve as it considers interest rates.

US inflation is expected to rise in July, with higher tariffs feeding through to consumers and driving core CPI higher. Economists anticipate core CPI to increase by 0.3% from the previous month, offsetting cheaper gasoline which may contribute to an overall CPI gain of 0.2% [1].

The impact of higher tariffs is evident in household furnishings and recreational goods, but core services inflation remains relatively tame. Economists expect tariffs to continue feeding through, posing a dilemma for the Federal Reserve as it considers interest rates [1].

The Federal Reserve has been cautious, with Dallas Fed President Lorie Logan noting that the inflationary impact of new tariffs may not be apparent until the fall [1]. Boston Fed President Susan Collins echoed this view, warning that tariffs could push core inflation closer to 3% by year-end [1]. The Fed is likely to adopt a data-dependent approach, reinforcing expectations that interest rate cuts may be delayed [1].

US President Donald Trump has continued to pressure the Fed for rate cuts, but the latest CPI report has reinforced expectations that the Fed may delay interest rate cuts. The probability of a 25 basis point (bps) rate cut in September has dropped to 52.6% from around 70% a week ago [1].

The US Dollar Index (DXY) has remained relatively stable, hovering around the 98.70 mark during European trading hours. The index has been consolidating after a recent rally driven by the release of US inflation data [1]. The DXY is expected to continue its consolidation, with traders awaiting the release of the Producer Price Index (PPI) and Industrial Production figures later in the day [1].

In other news, President Trump finalized a trade deal with Indonesia, imposing a 19% tariff on Indonesian exports. The agreement includes commitments from Indonesia to purchase $15 billion worth of US energy and $4.5 billion in agricultural products, along with 50 Boeing jets [1]. However, Trump has also threatened to impose new tariffs on pharmaceutical and semiconductor imports, signaling a continued focus on trade policies.

References:
[1] https://www.mitrade.com/insights/news/live-news/article-4-963519-20250716
[2] https://www.nbcnews.com/business/business-news/federal-reserve-official-dour-jobs-data-backs-3-rate-cut-rcna224078