Inflation Surprise Crashes Hopes for September Rate Cut
Expectations of a Federal Reserve rate cut in September have nosedived after fresh inflation data showed prices rising more than forecast.
The latest PCE report—considered the Fed’s go-to inflation gauge—revealed persistent upward pressure, casting doubt on any near-term policy easing.
Markets, which just yesterday leaned toward a rate reduction, now price in a 61% chance the Fed will hold steady for a sixth straight meeting. The odds of a cut have plunged to 39%, according to CME’s FedWatch tool.
June’s PCE rose 2.6% year-over-year, while the core reading hit 2.8%—both slightly above expectations. Monthly figures were in line at 0.3%, but back-to-back increases and a revision to May’s data suggest inflation is proving stickier than hoped.
The Fed held rates steady this week, maintaining its 4.25%–4.5% range. Chair Jerome Powell signaled caution ahead, pointing to tariff-driven inflation risks. He said the full impact of recent trade actions likely won’t be clear by September, complicating the outlook.
Meanwhile, President Trump escalated his attacks on Powell, calling him unfit for the role and blaming him for delaying necessary action. Trump also suggested that rising inflation is partly a consequence of his own tariff policies—a dynamic Powell alluded to in his comments.
With inflation stubborn and politics heating up, the Fed may be forced to wait longer than markets had hoped before pulling the trigger on rate cuts.
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