U.S. inflation outlook shifts on tariffs; Fed cuts in focus

Inflation pass-through likely continues; Fed rate cuts remain data-dependent

Tariff-driven inflation is still feeding into prices, and inflation pass-through is likely to persist over the coming months. The Fed rate cuts outlook remains data-dependent on CPI, PCE, and labor trends.

Cooling CPI has strengthened bets on Fed rate reductions, as reported by MPA Magazine. Still, the scale and duration of tariff effects remain uncertain, keeping policymakers focused on realized data rather than preset timelines.

Why tariff-driven inflation matters for households, borrowers, and markets

Tariffs raise import costs that many firms pass through to retail prices, squeezing household budgets and potentially shifting spending toward essentials. For borrowers, higher or stickier inflation can keep policy rates elevated longer, affecting mortgages, auto loans, and credit card APRs.

federal reserve communication has emphasized uncertainty around tariff impacts and the need to prevent short-term price spikes from unanchoring expectations. “The effects of tariffs on consumer prices are now clearly visible. We expect those effects to accumulate over coming months, with high uncertainty about timing and amounts,” said Jerome Powell, Chair of the Federal Reserve.

Labor data can also tilt the balance. A better-than-expected jobs report could give the Fed reason to put off further interest rate cuts, as reported by Newsweek.

Near-term impact and the Fed rate cuts outlook

Near-term, tariff pass-through likely adds to a one-time price level adjustment that could persist if it cascades into wages or expectations. If inflation metrics resume disinflation, the drag could fade; if not, cuts may be delayed.

Forecasts vary. goldman sachs Research has anticipated rate cuts in 2026 if tariff effects diminish and core inflation cools. Separately, Wells Fargo previously projected two cuts in 2025 while flagging tariff risks to the inflation path.

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Rate-cut scenarios and indicators to watch

If CPI and PCE cool, two cuts this year look likelier

If core CPI and PCE continue to ease, confidence in disinflation should improve and rate cuts become more plausible. HSBC has noted cuts are more likely if inflation and labor indicators soften in tandem.

If tariffs lift prices and jobs run hot, cuts may wait

If tariff pass-through lifts prices and jobs remain strong, the Fed may prioritize inflation control over easing. Barclays has warned tariff-induced cost pressures are set to feed through to consumer prices.

FAQ about tariff-driven inflation

How much of the latest tariffs has passed through to consumer prices (CPI) so far?

Some pass-through is already visible, with effects expected to accumulate in coming months. The precise magnitude and duration remain uncertain.

What is the current Fed rate cuts outlook and when are cuts most likely?

Policy is data-dependent. Cuts look likelier if CPI and PCE cool and jobs soften; stronger inflation or hiring could delay easing into a later window.