Cooler U.S. inflation has changed market expectations. July’s Consumer Price Index (CPI) came in softer than expected. Now, traders are betting on a Fed rate cut at every meeting left this year: September, October, and December.
The numbers look calm, but the situation is not. The tariffs President Donald Trump announced in April are still a risk. Their full impact on prices has not been felt yet. The question is whether this is a short-term slowdown or a real shift in inflation.
Here’s What You Need to Know and Why It Matters
1. Inflation was lower than expected
CPI data is in: Consumer prices rise 2.7% annually in July, less than expected amid tariff worries. Excluding food and energy, the core CPI increased 0.3% for the month and 3.1% from a year ago, compared with the forecasts for 0.3% and 3%. Of course, it will be revised...
— #WWU Center for Economic and Business Research (#@PugetSoundEF)
2:25 PM • Aug 12, 2025
CPI in July rose 0.2% from the previous month. The annual rate is 2.7%, lower than the 2.8% forecast. That’s a small win for those hoping for a “soft landing.” But core inflation, which excludes food and energy, rose slightly more than expected. This is the highest since February. Prices are still under pressure.
2. Tariff effects are not fully in the numbers yet
The impact of tariffs on consumers has been small so far. But the effect is delayed. Higher import costs could start pushing prices up in the coming months.
3. Goldman Sachs sees October as a risk month
Trump appears to be not very pleased with Goldman's Jan Hatzius, a well-respected economist on Wall Street who, notably, kinda predicted GFC in 2008
Hatzius's team, like most mainstream economists, has said tariffs would boost prices and slow growth
wsj.com/economy/trump-…
— #Ben Glickman (#@BenGlickman)
6:28 PM • Aug 12, 2025
Goldman’s chief economist Jan Hatzius sees October as a likely window when tariffs could finally show their teeth in CPI data. If that happens, the current market optimism could face a reality check. If that happens, it could change the market’s outlook fast.
4. Trump’s issues with the Fed add more noise
Trump has threatened legal action against Fed Chair Jerome Powell over building renovations. It is more political theater than a policy change, but it adds uncertainty.
5. Markets now expect three cuts
The CME FedWatch Tool shows traders expect the Fed to cut rates at all three remaining meetings in 2025. That is a big shift toward a dovish outlook. But when expectations lean too far one way, the risk of being wrong grows.
The takeaway
July’s CPI has pushed traders toward expecting multiple cuts. But tariffs, politics, and the risk of a hot inflation report are still in play. If you are betting on a dovish Fed, stay alert. One bad number can flip the story quickly.