Sam Williamson, senior economist at First American, believes that while the increase was anticipated, the impacts of tariffs may be starting to show up in the report.
“Consumer prices accelerated from June on a seasonally adjusted basis, but the uptick was in line with consensus expectations,” Williamson said. “While shelter costs remained the primary driver of inflation, rising 0.2% month-over-month, the uptick in consumer prices signals that companies may be beginning to pass tariff-related costs on to consumers, a dynamic the Federal Reserve will monitor closely in the next few months.”
CME FedWatch, which tracks the likelihood of changes in the Fed rate based on the 30-day Fed Funds futures prices, has all but thrown in the towel for July. After showing a 23% chance of a cut one month ago, the index shows just a 2.6% chance of a decline in July.
The index still prices in two cuts for the rest of 2025, with one scheduled for September and another for December. Williamson believes the Fed will continue to be patient with its potential rate cuts.
“While a September rate cut remains a possibility, today’s report likely reinforces the Fed’s cautious stance on rate moves,” Williamson said. “With inflation signals still mixed, the Fed appears inclined to wait for clearer evidence before making any policy moves.”