June Inflation Data Validates Powell's Trump Pushback

President Donald Trump's repeated calls for aggressive rate cuts collided with economic reality Tuesday, as June's rising inflation dynamics offered a win—at least temporarily—for Federal Reserve Chair Jerome Powell's cautious stance.

Headline inflation in June accelerated to 2.7% year over year, up from 2.4% in May and the highest reading since February.

On a monthly basis, the Consumer Price Index rose 0.3%—the largest increase in five months. Both figures were in line with economists forecasts.

Core inflation, which strips out food and energy, rose 2.9% from a year ago, slightly below the 3% consensus. Monthly core CPI came in at 0.2%, a touch under the expected 0.3%, but still above May's 0.1%.

In recent months, Powell has consistently resisted political pressure to lower interest rates, maintaining a wait-and-see approach amid growing uncertainty from rising tariffs.

That patience now appears warranted.

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June Inflation Data Validates Powell’s Trump Pushback

"Consumer Prices low. Bring down the Fed Rate, now!!!," Trump commented about the June’s inflation report.

But the underlying details told a more nuanced picture.

"This does not strike me as a good CPI print," said Mike Konczal of the Economic Security Project, noting that goods and non-housing services rose, even if lower shelter prices masked the full impact.

"It's just one month, but this is a clear win for the Fed having paused rate cuts."

"Today's report finally provided ample evidence that tariffs are being passed onto consumers," said Bank of America’s economist Stephen Juneau in a note.

Core goods prices rose 0.2% month over month and 0.3% when excluding used cars, which declined again. Price hikes were broad-based across categories like appliances, apparel and recreational items.

Juneau expects this dynamic to carry into the Fed's preferred inflation metric, projecting a 0.3% monthly increase in core Personal Consumption Expenditures (PCE) that could keep the year-over-year rate near 3% by the third quarter.

"If our PCE tracking estimate is correct, the case for the Fed to remain on hold this year (our call) would strengthen," he said.

"Inflation's not going quietly. June's 2.7% CPI reading tells us the road back to 2% won't be smooth and gives the Fed reason to pause before cutting rates," Gina Bolvin, president of Bolvin Wealth Management Group, added.

Bill Adams, chief economist at Comerica Bank, said CPI data shows inflation is still running above target, though within range. "Core CPI has ranged from 2.8% to 3.3% since last June, and total CPI from 2.3% to 3.0%. Both currently sit at around the middle of those ranges."

Given that the unemployment rate edged lower in June, Adams said the Fed has room to wait. "There's no smoking gun forcing a rate cut in July."

What's Next For The Fed?

Markets now widely expect the Federal Reserve to hold rates steady at its July meeting. However, rate futures still reflect hopes for two cuts in the second half of 2025, and another two in 2026—bets that look increasingly fragile as inflation proves sticky.

Powell's term ends in May 2026 and speculation over his successor is intensifying.

According to Kalshi, the leading betting platform, former Fed governor Kevin Warsh leads with a 36% chance of taking the role, followed by economist Kevin Hassett at 30%.

Fed Governor Christopher Waller trails at 19%, while Trump’s Treasury Secretary Scott Bessent holds a 14% probability.

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