Core US inflation picked up in July even as the cost of goods exposed to Donald Trump’s gleeful tariff barrage failed to climb as much as expected. The result? Markets are now even more convinced that the Federal Reserve will oblige with a rate cut next month, as though economic gravity no longer applies.
The core Consumer Price Index (CPI), stripping out the naughty, volatile categories of food and energy, rose 0.3% from June, its fastest clip since January. That matched economists’ forecasts, as did the overall monthly CPI figure.
This has been translated by the market as inflation was broadly in line with expectations, with tariffs still largely being absorbed by profit margins. In other words, companies are eating the costs for now, so let’s all pretend tariffs are harmless. That gives the Fed room to respond to the deteriorating jobs market and cut rates from September.

The details tell a different story. The acceleration was driven by service prices, excluding energy, which posted their sharpest rise this year. The service-price rebound after months of moderation underscores the Fed’s persistent inflation headache. Policymakers are still wrestling with whether Trump’s tariff bonanza will inflict longer-lasting inflationary pressures. The Fed has left rates unchanged all year, trying to measure the impact of tariffs, while politely ignoring Trump’s increasingly shrill demands for cuts.
The president has once again publicly called for Jerome Powell to trim borrowing costs, because nothing says central bank “independence” like being ordered about on social media.
Markets, ever desperate for liquidity, shrugged at the CPI data. Treasuries firmed, and the S&P 500 edged towards another record close. Traders are pricing in a September cut with growing conviction, citing a “softening” labour market, although “softening” is a polite euphemism for “we’re betting Powell will blink.”

Another Fed-watched gauge of services inflation, excluding housing and energy, jumped 0.5%, one of the strongest readings this year. The catch? It’s calculated using a different index, because in the inflation game, definitions are flexible when politically convenient.
That separate measure feeds into the Fed’s preferred Personal Consumption Expenditures (PCE) price index, which gives housing a lighter weighting.

While tariffs didn’t drive the price surge Fed officials feared, this rise, which will translate into an even higher core PCE, leaves a September rate cut far from certain. In other words, traders might want to keep some powder dry.
After months of chaotic threats and tariff whiplash, higher duties for nearly every country took effect last week, which could keep upward pressure on inflation, even as Trump negotiates with China and other “friends” in his unique, transactional style.

Some companies have delayed price hikes, fearful of alienating consumers already tightening their belts. It is a fact that tariffs have so far had a limited effect on inflation. But given they rise one day, fall the next, then rise again, it’s far too early to predict their final impact on prices. The Fed is also tracking wage growth, because if people earn more, they might actually spend more, which tends to push prices up. A separate report combining inflation and wage data showed real average hourly earnings rose 1.2% in July from a year earlier.
The release came just after Trump appointed EJ Antoni, the Heritage Foundation’s chief economist and a vocal critic of official labour data, to head the BLS, replacing its previous director. Antoni has openly questioned the reliability of jobs data, while Trump has accused the agency of “fudging” the numbers. Convenient, isn’t it, when you can rewrite both the policy and the scoreboard?