Rest assured that you’re not alone if your buying habits now vacillate between hoarding imported chocolate (we’re raising our sticky hands) and putting off a new car purchase.
As tariff fever sweeps through the post-pandemic U.S. economy, twin concerns about inflation and interest rate cuts are top of mind for consumers, businesses, and investors.
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President Donald Trump implemented on July 8 a final extension — from July 9 to August 1 — for tariff deadlines to U.S. trading partners, and added in comments to reporters that this was a final offer.
The tariffs — essentially an external sales tax — are the biggest in 90 years. Some are as high as 40 percent or more, with rumblings that those numbers could escalate.
Inflation, interest rates share strong connection
Some Fed watchers and market analysts have been forecasting the next probable rate cut of .25% could come at the Federal Open Meeting Committee meeting in September.
Others demur.
Fed Governors Michelle Bowman and Christopher Waller, both Trump appointees, separately said late last month that a funds rate cut could come as early as this month.
But both noted that the summer’s data would have to prove tariff inflation was short term and the jobs numbers didn’t weaken.
The Federal Open Meeting Committee decided unanimously last month to hold the Federal Funds Rate steady at 4.25% – 4.50%, despite describing the U.S. economy as “stable.”
The reason: expected inflation creeping up this summer from Trump’s tariffs.
The funds rate is tied to the cost of borrowing money, impacting all aspects of the American economy from mortgages to Treasury bonds to credit cards.
Related: Morgan Stanley predicts next Federal Reserve interest rate cut
To say we all feel this is an understatement.
Yet this “wait-and-see” approach to the funds rate reflects the Fed’s dual legal mandate: regulate the U.S. money supply by keeping inflation in check and the unemployment rate stable.
Fed Chair supports holding interest rates steady
The Federal Reserve Bank of New York on July 8 released its June 2025 Survey of Consumer Expectations, which shows that U.S. households’ inflation expectations ticked down in the short-term horizon and remained unchanged at the medium- and longer-term horizons.
In addition, the survey data said:
- Unemployment and job loss expectations improved.
- Spending growth expectations slightly declined, while household income growth expectations increased.
- Households were more optimistic about their year-ahead financial situations and credit access.
Related: Federal Reserve chair sends strong message on July interest rate cut
After once again blasting Federal Reserve Board Chair Jerome Powell for the Fed’s delay in cutting interest rates in 2025, the president on July 8 praised America’s economic status:
- “Prices are down in this country.”
- “We have no inflation.”
- “We’re going to have hundreds (of new jobs) started in record time.”
Powell said on July 1 that the labor market was a key element of when the next U.S. rate cut will happen, with tariffs being the reason.
Two days later, the June jobs report was higher than expected at 147,000, with growth seen in state and local government roles and unemployment a tad lower.
He defended the FOMC’s universal decision to hold the Federal Funds Rate, despite describing the U.S. economy as “stable.”
More Federal Reserve:
- Fed interest rate cut decision resets forecasts for the rest of this year
- Federal Reserve prepares strong message on long-term interest rates
- Fed official revamps interest-rate cut forecast for this year
Goldman Sachs Vice Chair Robert Kaplan, a former Dallas Fed President, told CNBC on July 8 that the economy has had 90 days to react and absorb the surprise when tariffs were first unveiled in April on what the White House called “Liberation Day.”
“The shock part is in the rear-view mirror,’’ Kaplan said, adding that the Fed’s action thus far has been “prudent.”
The next Federal Open Meeting Committee is July 29-30.
The CME FedWatch tool lowered the likelihood of a July rate cut to 4.2 percent after a strong June jobs report.
“The labor force is much tighter right now than people think,” Kaplan said. A tighter labor market leads to slower growth in GDP, he said.
Citi Research Head of Strategy Rob Row told CNBC on July 8 he expected three Federal Funds Rate cuts this year and two next year.
Related: Fed official makes surprising interest rate cut prediction
