U.S. CPI May Rebound Sharply, Deepening the Fed

Tariff Effects May Reach a Turning Point, June CPI Draws Market Attention

The United States is set to release June's Consumer Price Index (CPI) data this week, with markets closely watching if inflation accelerates due to tariffs. In recent months, despite Trump's increasing tariff policies, overall inflation has remained moderate. Whether this trend will be disrupted in June is seen as a critical turning point by economic observers.

As companies find it increasingly difficult to absorb costs through profit compression and early stockpiling, more product prices are starting to be passed on to consumers. Economists widely predict that prices of furniture, cars, entertainment products, and other goods will drive a faster month-on-month increase in June's CPI, serving as a core sample to test the validity of the "tariff inflation theory."

The Fed Faces a Dilemma, Subtle Situational Evolution

For the Federal Reserve, the performance of June's CPI data will influence its monetary policy direction. Although some dovish officials have expressed a willingness to cut rates this year, the path remains controversial as inflation continues to be moderate. If June's CPI rebounds, it may validate the Fed's previous "wait and see" strategy on inflation before making decisions, thus alleviating internal pressure to cut rates.

However, if prices remain lukewarm, it will not only weaken some officials' stance on caution but also potentially intensify President Trump's criticisms. He has repeatedly accused the Fed of hindering economic growth, pressing for rate cuts.

Companies Begin Price Hike Trend, Cost Passing Becomes a Trend

Although June's data has yet to be released, multiple surveys have indicated that American companies are systematically raising prices in response to rising import tariffs. According to a New York Fed survey, about 75% of surveyed companies reported increasing product prices, covering core consumer categories such as cars, clothing, and appliances.

Retail giants like Nike and Toyota also plan to raise retail prices in the second half of this year. In the service industry, items like flights and accommodations are also seen as potentially having upward price momentum, further reinforcing the risk of accelerating CPI increases.

Increasingly Complex Policy Communication, Heightened Market Game Sentiment

As the impact of tariffs becomes increasingly apparent, policy-making divisions are also intensifying. The Fed's June meeting minutes clearly show that some officials worry the tariff impact is a short-term shock inadequate to constitute systemic inflation, while others believe its impact is profound and may delay achieving inflation targets.

Chairman Powell expresses caution about this, emphasizing not to rule out that tariffs could bring "higher than expected" inflation impact. He emphasized in his speech in Portugal the need to be prepared for coping with "off-peak" shocks, suggesting future policy rhythm will highly depend on data performance.

Trump's Hardline Stance Unwavering, Economic Decision Path Highly Uncertain

The Trump administration recently announced that from August, higher tariffs will be imposed on goods from multiple countries including copper, marking a continuation of its tough trade policy. Although some voices in the market believe the president might make another concession, uncertainty remains high.

Pantheon analysts noted that even if there's a short-term surge in tariff rates over the coming weeks, it may only be a "technical breakout," with companies already adjusting supply chains and pricing strategies to mitigate long-term impacts. Yet, for the CPI, this short-term price surge may still pose significant implications, thereby disrupting the Fed's decision-making logic.

Inflation Data as Policy Weather Vane, Market Volatility Expected to Intensify

As June's CPI is poised for release, the market is gearing up for its first significant test of the tariff inflation effect. If data show rising price pressures, the Fed may bolster its stance to hold firm and send more hawkish signals to the market; if data remains weak, it could prompt another round of pressure from Trump and lead the market to bet on earlier rate cuts within the year.

In this game of chess, investors will have to navigate uncertainty, with every detail of CPI figures potentially becoming key variables in determining interest rate trends and financial market directions.

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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