Inflation accelerated in June as President Donald Trump’s tariffs started to leave a bigger imprint on the economy, keeping the Federal Reserve on track to hold interest rates steady when policymakers next meet this month.
The consumer price index rose 2.7% from a year ago, the swiftest pace since February, data released by the Bureau of Labor Statistics showed Tuesday. That is slightly higher than expected and is up from an annual pace of 2.4% in May.
“Core” inflation, which strips out volatile food and energy prices and is seen as a reliable gauge for underlying price pressures, also shifted higher. Those prices were up 2.9% from the same time last year.
Over the course of the month, prices rose 0.3%, a notable pickup from a 0.1% increase in May. Core prices rose 0.2%.
The June data still reflects only the initial impact of Trump’s global trade war. Economists expect price pressures to intensify over the coming months, especially if new tariffs the president has threatened against the European Union and a host of other countries in recent days are imposed Aug. 1 as planned.
Up to this point, inflation has been more muted than feared when Trump returned to the White House. That has emboldened the president and his top advisers to dismiss the latest set of warnings from economists about the damage steep tariffs could have on consumers and businesses across the country.
What economists and policymakers fear most is a stagflationary shock in which inflation rises as the economy flatlines or, worse, contracts. Before the latest trade escalation, the Federal Reserve saw the risks of that outcome receding. Now, the risks are rising once again.
Signs of accelerating price pressures will make it much more difficult for the central bank to restart interest rate cuts that have been on hold since January. Officials have instead been wedded to a “wait-and-see” approach, opting to keep borrowing costs steady until they have a clearer sense of how Trump’s policies — which beyond tariffs include a crackdown on immigration, sweeping tax and spending cuts, and a broad deregulatory push — will impact the economy.
For the Fed to cut interest rates, it either needs to have in hand evidence that inflation is indeed under control and not at risk of flaring up, or that the labor market is weakening a lot more. So far, neither has come to pass, suggesting there is still little urgency among most officials for the central bank to make a policy move.
Some divisions have emerged, however, with a handful of policymakers calling for a reduction in borrowing costs as early as this month. But the recent economic data, and Trump’s latest trade broadside, have dashed those hopes. The Fed’s next policy decision will be July 30.
The Fed’s patient approach has angered Trump, who has incessantly demanded that the Fed significantly lower interest rates. As part of his pressure campaign against the central bank, the president has taken to berating Fed Chair Jerome Powell on a nearly daily basis and has even gone so far as to call for him to resign.
This article originally appeared in The New York Times.
