U.S. Inflation Stable but Pressures Mount, Fed’s Rate Cut Outlook Becomes Cautious

By ariachiang

2025-08-19

According to the latest mid-August data, the U.S. July Consumer Price Index (CPI) increased 2.7% year-on-year, slightly below the market expectation of 2.8%, maintaining a stable pace compared with the prior month. This suggests inflationary pressures remain manageable. However, the Producer Price Index (PPI) for July rose sharply from 2.4% to 3.3% year-on-year, marking a three-year high and reflecting growing cost pressures from tariffs and supply chains. As a result, market optimism for Federal Reserve (Fed) rate cuts has cooled.

While the stable CPI eases some concerns, the rising PPI highlights potential upstream cost pressures that may eventually pass through to consumer prices, posing a risk of inflation rebound. On the labor front, the job market remains robust, with unemployment slightly rising to 4.5%, showing no clear signs of demand weakening. This has made the Fed more cautious about the timing of rate cuts. Although the June dot plot still shows a median forecast of two rate cuts this year, the number of officials supporting immediate cuts has decreased, indicating increasing internal divergence.
U.S. June 2025 FED Dot Plot

（Source: Federal Reserve）

Experts generally emphasize that U.S. inflation in the second half of the year faces dual pressures from tariffs and supply chain costs. The Fed will closely monitor economic data and inflation trends to balance supporting economic stability and controlling inflation. Meanwhile, markets should also watch developments in U.S. debt reduction and fiscal policy changes for their impact on future interest rates.

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