June’s Consumer Price Index (CPI) report suggests the Federal Reserve may hold off on rate cuts due to uncertainty over tariff impacts on inflation. Core CPI grew 0.2%, slightly below expectations but higher than May. Investors now see a 97% chance the Fed will keep rates unchanged in July.

Apparel prices rose in June, with furniture and footwear also seeing increases, reflecting potential tariff-related cost pressures on consumers. Economists believe the full inflationary effects of tariffs will take time to materialize. Businesses are expected to pass on higher tariff costs quickly, potentially leading to short-lived price increases.

The Fed is divided on rate cuts, with “most” officials supporting at least one cut this year, while President Trump advocates for significantly lower rates. The next major inflation tests for the Fed include the Producer Price Index and the Personal Consumption Expenditures index. Uncertainty around Trump’s tariff policy continues to influence the Fed’s cautious stance.

Economists warn that if Trump’s proposed tariffs are implemented, the inflationary impact on goods prices could take several months to appear. This could delay the next rate cut until later in the year, keeping the Fed on hold unless the labor market weakens significantly. The Fed may wait too long to cut rates due to tariff uncertainty, potentially leading to more aggressive cuts later.

Read more at Yahoo Finance: June inflation data reaffirms Fed pause as tariff uncertainty grows