Will the Fed finally slash rates this fall?
Investors are bracing for Tuesday’s release of the US consumer price index (CPI) for July, a key gauge of inflation that could shape the Federal Reserve’s next policy decision. Economists polled by Reuters expect the index to have risen 0.2% in July, down from June’s 0.3% gain.
The data will be the first full inflation reading since President Trump dismissed Bureau of Labor Statistics (BLS) Commissioner Erika McEntarfer earlier this month, raising concerns about political pressure on official economic reports. Global currency and rates strategist Thierry Wizman of Macquarie Group warned that suspicions of manipulation could affect market reactions.
July’s CPI is also the last full-month report before Trump’s “reciprocal” tariff regime took effect on August 7. Analysts at Goldman Sachs forecast annual CPI inflation of 3.3% by December, or 2.5% excluding tariff effects, citing continued upward pressure on prices from import duties.
Fed officials signal policy shift
Trade negotiations between Washington and Beijing are approaching an August 12 deadline aimed at preventing higher tariffs on technology goods. The Financial Times reported that Nvidia and AMD agreed to allocate 15% of their Chinese sales revenue to the US government in return for export licenses, following US national security concerns over advanced chips.
A weaker-than-expected July jobs report has intensified speculation that the Fed will move to cut interest rates as soon as September. Minneapolis Fed president Neel Kashkari said cooling wage growth, slower consumer spending, and weaker hiring suggest the economy is losing momentum. “In the near term, it may become appropriate to start adjusting the federal funds rate,” Kashkari told CNBC.
San Francisco Fed president Mary Daly cautioned that a rapid downturn in the labor market could warrant faster action, while Fed governor Lisa Cook described large downward revisions to recent job figures as “concerning.”
J.P. Morgan now expects the Fed to lower rates by 25 basis points in September, revising its earlier forecast for a December move. The bank projects three more quarter-point cuts before the central bank pauses. Traders are pricing in a 91.4% chance of a September cut, up from 37.7% a week earlier, according to CME FedWatch data.
The Federal Open Market Committee is set to meet on September 17, with August labor data expected to be a decisive factor in the size and timing of any rate reductions.
How do you think the Fed should respond if Tuesday’s inflation data confirms the economy is slowing? Share your insights in the comments below.
