Expectations that U.S. President Donald Trump‘s tariff policies will increase price pressures are seen keeping the Fed on hold as policymakers wait to see their impact. Fed Chair Jerome Powell has said he anticipated prices will rise this summer.
“Tariffs are in the data, but it’s not as devastating as many feared,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls in Wisconsin.
The Consumer Price Index increased 0.3% last month after edging up 0.1% in May. That was the largest gain since January. In the 12 months through June, the CPI advanced 2.7% after rising 2.4% in May.
Economists polled by Reuters had forecast a 0.3% monthly increase and a 2.6% rise on a year-over-year basis.
Excluding the volatile food and energy components, the CPI rose 0.2% in June after edging up 0.1% in the prior month. In the 12 months through June, core inflation was 2.9%, inching up after holding at 2.8% for three straight months. Fed funds traders are pricing in 48 basis points of cuts by year-end, little changed from before the data, with the first rate reduction expected in September. “A slightly softer-than-expected June core inflation reading keeps alive the chances of a September Federal Reserve interest rate cut, but the risk is that we get less benign prints for July and August,” James Knightley, chief international economist, US at ING said in a note. “That means we will need to see clear evidence of softer jobs figures to trigger Fed action before December.”
The euro was last down 0.27% on the day at $1.1631, the lowest since June 25. Against the Japanese yen, the dollar strengthened 0.66% to 148.68, the highest since April 3.
Sterling weakened 0.21% to $1.3399, the lowest since June 23.
The dollar weakened after Trump in April announced larger than expected tariffs, but then delayed many of the levies pending negotiations with trading partners.
Trump last week announced higher tariffs would come into effect on August 1 for imports from a range of countries, including Mexico, Japan, Canada and Brazil, and the European Union, though market reaction this time was relatively muted.
“The market is ignoring the tariffs until it becomes clear whether there’s going to be sort of a major escalation like there was with China in April or if this is just yet another step on the way to some sort of deal,” said Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered Bank’s NY Branch.
In addition to tariffs and inflation, markets are also focused on the U.S. fiscal and debt outlook, and the pressure the Trump administration is placing on Powell as he keeps rates on hold.
“There are a lot of balls in the air. It’s just that it’s unclear how heavy each one of them is, and which one is going to have the biggest impact when it lands,” Englander said.
Trump said on Tuesday that consumer prices were low and the Fed should bring down interest rates now.
Powell has also asked the U.S. central bank’s inspector general to review the costs involved in the renovation of its historic headquarters in Washington, as Trump administration officials intensify their criticism of how the Fed is being run.
U.S. Treasury Secretary Scott Bessent said on Tuesday that a “formal process” is already starting to identify a potential successor to Powell, whose term will end in May.
Bitcoin fell 1.52% to $118,394. It hit a record $123,153 on Monday as investors bet on long-sought policy wins for the industry this week, which has been dubbed “crypto week” by U.S. Republicans.
