July CPI Eases Fed Rate Cut Pressure With 2.7% Annual Inflation

July inflation data has eased the pressure on Federal Reserve Chair Jerome Powell, with the Consumer Price Index (CPI) rising 0.2% month-on-month in July, down from the 0.3% increase in June. Year-on-year, the headline inflation rate stood at 2.7%, unchanged from the previous month but still above the Fed’s 2% target. Core inflation, excluding volatile food and energy categories, rose to 3.1% year-on-year, remaining a concern for policymakers[1].

The energy index saw a 1.1% decline in July, with gasoline costs falling by 2.2%. These developments have bolstered expectations for a rate cut at the Fed’s next meeting in September. However, analysts caution that while headline inflation remains below 3%, the persistent rise in core inflation—driven largely by services such as shelter—suggests that the path to a return to 2% is not straightforward[1].

President Trump’s allies seized on the relatively flat inflation report to urge Powell to cut rates, arguing that tariffs have not yet caused the level of inflation many had anticipated. Trump himself tweeted shortly after the data was released, criticizing Powell for being “Too Late” and suggesting the economy is strong enough to withstand lower rates[1].

White House tariff policies, particularly those announced in April, had previously raised concerns among analysts that increased costs would be passed on to consumers, driving inflation higher. However, with agreements now in place and delays in implementing tariffs—especially with China—economists are beginning to question whether the full impact will materialize at all[1].

The Federal Open Market Committee (FOMC) has long balanced its dual mandate of price stability and maximum employment. A sharp rise in inflation following a recent negative jobs report could have created a more difficult policy environment. Instead, the latest data has allowed officials to ease their concerns about inflationary risks and consider rate cuts to support the labor market[1].

Market reaction was swift and positive. The S&P 500, Dow Jones, and Nasdaq all rose in the wake of the data release, reflecting optimism that the Fed could soon act to lower rates[1]. Seema Shah, chief global strategist at Principal Asset Management, noted that the July inflation report “isn’t hot enough to derail the Fed from cutting rates in September,” though she warned that future cuts in 2025 remain uncertain due to potential inflationary pressures from tariffs and inventory adjustments[1].

Analysts remain cautious about projecting multiple rate cuts for the remainder of the year. While the CME FedWatch tool shows over 94% of traders expecting a cut in September, many warn that further data—especially the upcoming jobs report—could complicate the Fed’s decision-making process. Michael Pearce of Oxford Economics argued that the July CPI report does not guarantee a September cut, given the continued rise in core inflation. He expects core inflation to peak at 3.8% by year-end due to the delayed effects of tariffs[1].

Bill Adams, chief economist at Comerica Bank, echoed this sentiment, emphasizing that the inflationary pressures in July were driven more by sticky service costs than by tariff-related goods. As such, he believes the September employment report will carry more weight in the Fed’s decision-making than the latest inflation data[1].

UBS’s Ulrike Hoffmann-Burchardi, CIO Americas and global head of equities, forecasts a 100 basis point rate cut for the year if inflation remains under control and the economy continues to slow. However, Elyse Ausenbaugh of J.P. Morgan cautioned against overconfidence, noting that the Fed could be “considering a move in September,” but a cut is not guaranteed. Additional data, particularly in the labor market, could delay further easing[1].

The Fed’s next meeting is scheduled for September, with two additional meetings in October and December. While one FOMC member, Michelle Bowman, has signaled openness to multiple rate cuts, others are likely to maintain a more cautious stance. For now, the July inflation report has created a window of opportunity for Powell to act, but the path forward remains uncertain as the Fed navigates the complex interplay of inflation, employment, and external economic forces[1].

Source: [1]Jerome Powell’s job just got a whole lot easier as inflation data sidesteps disaster (https://fortune.com/2025/08/12/jerome-powell-fed-rate-cut-july-cpi-inflation-unemployment/)