Tariff-Linked Inflation Rattles Rate Expectations
Consumer prices posted a moderate gain in June, but Fed officials and market strategists are bracing for broader inflation spillover as Trump’s tariff policies begin to bite. While the producer price index remained flat, Fed Chair Powell has cautioned inflation could rise this summer due to these trade levies.
The inflation outlook has pushed back expectations for the Fed’s next rate move, even as weakness in the hiring trend contradicts the stable headline employment data. Strategists like DRW Trading’s Lou Brien note that while layoffs remain below pre-pandemic levels, poor hiring could sharply elevate unemployment if dismissals pick up.
Fed’s Waller Pushes Back—Rate Cut Talk Builds
Fed Governor Chris Waller struck a dovish tone Friday, favoring a rate cut at the July FOMC meeting. He cited weak private-sector labor data and downplayed inflation risks from tariffs, stating the Fed should “get ahead” of a potential hiring slowdown.
This aligns with fed funds futures pricing in 45 basis points of easing by year-end, signaling two quarter-point cuts are likely—most traders eye September for the first move. Markets briefly priced more aggressive easing mid-week after reports surfaced that Trump might fire Powell, though the dollar rebounded after the rumor was denied.
