June CPI Preview: Inflation Might Finally Show Up Thanks to Tariffs but the Fed Could Still Cut Rates

We’ve been hearing about Trump’s new tariffs for months, but inflation? Barely a blip. That might be about to change.

Economists think June’s inflation data could be the first real sign that tariffs are starting to bite. The numbers are set to be released Tuesday, and how the Federal Reserve reacts could shape the rest of the year for markets.

A quick refresher on what CPI means

CPI, or the Consumer Price Index, is one of the main ways the U.S. measures inflation. It tracks how much prices for everyday items like rent, gas, clothes, and groceries are going up (or down). There’s also “core CPI,” which strips out food and energy prices because they bounce around a lot. That core number is what the Fed watches most closely, since it gives a better idea of long-term inflation trends.

For June, both the overall and core CPI are expected to rise 0.3%. That would push the annual core rate closer to 3%, well above the Fed’s 2% target.

If the forecasts are right, this would be the first time we clearly see inflation driven by higher tariffs under Trump’s trade policy—and it could rule out any surprise rate cuts in July.

So why hasn’t inflation jumped already?

There are a few reasons inflation has stayed tame, even with tariffs:

Many tariffs were delayed or reduced. The White House tweaked the policy to limit the price impact.
Businesses stockpiled goods. They bought ahead before tariffs kicked in, keeping prices stable for a while.
Other prices were falling. Oil is down 14% since January, helping offset overall inflation.
Housing costs slowed down. Rents and home prices, a big part of CPI, are rising at their slowest pace since before the pandemic.

But some prices are already climbing

We are starting to see price increases in certain areas like tools, furniture, and new cars. Goods prices overall rose 0.3% over the past year—small, but notable, because they had been falling for more than a year before the new tariffs.

As businesses run out of cheaper, pre-tariff inventory, prices are beginning to reflect the new costs. Economists expect this trend to continue, but most don’t think it will last long or get out of control.

Why the Fed might still go ahead and cut rates

Inflation is only part of the story. The job market is sending warning signs that the economy may be cooling:

Private employers added the fewest jobs since last fall.
Most of those jobs were in healthcare—other sectors are lagging.
Weekly unemployment claims have climbed to a four-year high, suggesting it’s taking longer to find work.

In short, the Fed is watching both inflation and jobs. If inflation rises just a bit but the job market weakens further, the Fed may still move forward with a rate cut in September.

What I think is really happening

Tariff-driven inflation is starting to appear, but it looks narrow and temporary. It’s mostly hitting goods, not services. And many businesses are holding off on big price hikes, fearing customer backlash.

Consumers, after dealing with the worst inflation in 40 years, are now very price sensitive. That’s capping how far and how fast companies can pass on new costs.

Wall Street seems to agree. Wells Fargo expects core inflation to rise to 3.3% by the end of the year, but then drop back to pre-tariff levels by 2026. In their words, “Tariffs are a temporary adjustment in price levels.”

A critical few weeks ahead for the Fed

The next couple of inflation reports will be crucial. If we see back-to-back strong numbers, especially in services, the Fed may need to hit pause. But if inflation remains modest and jobs data continues to weaken, they’ll likely go ahead with a rate cut.

Personally, I think the Fed is leaning toward stimulus—unless inflation really takes off. The labor market looks too fragile to ignore.

Also worth watching: whether tariffs become a major political issue again. Trump has tied them to his broader strategy, and if the economic pain spreads, public pushback could become part of the story too.