Fed’s Tariff-Led Inflation Worries in Focus as June CPI, 3% Core Print Awaited

Traders brace for key U.S. CPI inflation data as tariff pass-through accelerates, clouding prospects of a July rate cut by the Fed.

Inflation Data Set to Test Powell’s Summer Warning

June CPI data, due at 8:30 a.m. ET on July 16, could validate the Federal Reserve’s concerns about tariffs pushing inflation higher. Economists expect core CPI (excluding food and energy) to rise 3% YoY, up from May’s 2.9%, as imported goods and recreational commodities see steeper price increases.

Fed Chair Jerome Powell had earlier flagged this summer as the turning point when tariff-related inflation might become more visible, citing lagged pass-through effects on consumer prices. If CPI confirms the forecast, it may signal the beginning of a sustained uptick and challenge bets on a September rate cut.

• Core CPI forecast: 3.0% YoY vs 2.9% in May

• Fed’s inflation target (PCE): 2.0%

• Powell expects tariff effects to emerge by Q3

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Market Cautious Ahead of Print; Bond Yields Edge Higher

Ahead of the CPI release, U.S. Treasury yields have inched up, reflecting a repricing of rate cut expectations. The 10-year yield rose to 4.31%, while Fed funds futures now imply just a 45% probability of a September cut, down from 58% last week.

Traders are eyeing categories like household furnishings, recreational goods, and outdoor tools—items with high exposure to China-import tariffs—for signs of CPI pressure. Economists note a divergence between previously disinflationary items and their recent price spikes.

“We haven’t seen the full impact yet, but June could be the first signal,” said Gregory Daco, chief economist at EY-Parthenon.

• Bond yields firm ahead of CPI print

• Market pricing in fewer rate cuts

• High-tariff categories now showing price acceleration

Policy Outlook in Focus as Tariff Uncertainty Persists

The Fed’s preferred inflation gauge, core PCE, rose 2.7% in May, with projections pointing toward 3.1% by year-end. New tariff threats for August 1, particularly on Mexico, Canada, and EU goods, could further fuel cost pressures.

Economists at JP Morgan estimate a 0.2-0.3 percentage point rise in PCE if these tariffs are passed through partially. That backdrop is prompting policymakers to signal caution on easing.

• New tariffs could push PCE to 3.1%+

• Margin compression and pass-through risks growing

• Fed may pause rate cuts at July 30 meeting

Trading Setup & Key Macro Triggers to Watch

Markets will be highly sensitive to the CPI release. A hotter print near or above 3% may delay or derail Fed easing, especially if July’s FOMC minutes emphasize inflation vigilance.

Watchlist:

• Gold ($3,500 zone) – Inflation hedge on breakout watch

• Retail ETFs (XRT) – Sensitive to consumer price squeeze

• U.S. 10Y Yield (4.31%) – Key to rate expectations

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