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Investing.com -- The consumer price index (CPI) report earlier this week suggested that U.S. inflation may be settling around 3% as price pressures are no longer on a clear path toward the Federal Reserve’s 2% target.
According to Yardeni Research, President Donald Trump’s trade tariffs may have contributed to this trend, although “their impact remains debated,” the firm said.
Core CPI inflation rose to 2.9% in June, up slightly from the prior month, which implies “that the core PCED inflation rate (at 2.7% in May) might have followed a similar trend,” according to Yardeni’s Tuesday report. This comes despite cooling rent inflation, as shelter costs continue to disinflate.
Some of the recent inflationary momentum may be linked to import-sensitive sectors. Yardeni notes that the durable goods CPI increased by 0.1% on the month, led by imported categories such as appliances, which saw a 2.2% price jump.
Although prices for used and new vehicles declined in June, the market research firm adds that “both are likely to increase as Trump’s 25% tariffs on imported cars, steel, aluminum, and copper hit the auto industry in the new model year.”
Nondurable goods prices also moved higher, climbing 0.5% month-over-month. Items potentially impacted by tariffs, including footwear, apparel, and prescription drugs, were among the notable drivers.
Trump is calling for aggressive rate cuts, pushing the Fed to lower the federal funds rate from 4.33% to 1%.
While that could help reduce the federal deficit and support trade through a weaker dollar, “Jerome Powell and most Federal Open Market Committee (FOMC) participants are reluctant to cut rates, especially to 1%, due to concerns that Trump’s tariffs could hinder progress toward the Fed’s 2.0% inflation target,” the report emphasized.
The June CPI report appears to back that cautious stance. “Although Trump’s tariffs may not yet be significantly driving inflation, they appear to be contributing to inflation stalling at around 3%,” Yardeni continued.
That plateau may leave the Fed in a holding pattern as it assesses whether tariff-related pressures continue to offset disinflation in other parts of the economy.