US Inflation to Rise As Pressure Increases on Fed

Economists are expecting rising inflation in the US as a result of tariffs, but the market is getting increasingly unsure about when or whether the Fed will cut rates.

Forecast Points to Rising Inflation

due to rising input costs from the effects of tariffs, according to the consensus among economists. Headline CPI is forecast to accelerate to 2.6% year-on-year from 2.4% prior, while the core rate is expected to tick up to 2.9% from 2.8% a month earlier. However, economists have been consistently overshooting their predictions every month since the tariffs began and have pointed to the next month. Still, Chair Jerome Powell for not cutting rates.

Meanwhile, other major central banks have continued the post-pandemic easing cycle as inflation has come under control, even if it has blipped up a bit. However, last month saw the first acceleration in inflation this year, and a continuation of the trend could justify the Fed's caution. Notably, the reading also missed expectations. If inflation fails to meet expectations again, it's a question of whether the market will keep pushing forward the long-predicted rise in consumer prices.

When Could the Effects Be Noticed

Economists are expecting "broad-based price hikes" as a result of the increased cost to import goods, as importers pass on the cost of tariffs to consumers. Although there has been no clear relationship, some importers, such as Walmart, have acknowledged that they are to their customers. Other factors are also pushing prices down, such as lower housing costs. Foreign cars that tariffs have hit might also struggle to pass on the higher prices to consumers, after a surge in buying during March and April could cause faltering demand at least in June.

If inflation rises, it would delay the Fed from easing and likely weigh on the Nasdaq. The index is coming off a record high, , as investors still believe in AI. Meanwhile, markets have expressed some doubts about rate cuts, with the chances of a rate cut in September dropping by seven percentage points to 57%. However, undershooting inflation once again could convince some traders that the worries around inflation might be exaggerated, and they could start pricing in a September rate cut. The prospect of smoother consumer prices coupled with lower borrowing costs could be the catalyst needed for the Nasdaq to strike new heights.

Nasdaq in a Broadening Wedge Pattern

The tech-heavy index is pulling back after the RSI reached the overbought zone and prices formed a double top at 22850. Although declines could continue in the short term, exposing 22170 and the 21500 regional support, Nasdaq did not fully extend to the upper trendline of a potential broadening wedge pattern. In doing so, it could discover new prices within the 23000-23500 territory, with a test of the trendline triggering a potential reversal. One of the first signs of confirmation would be breaking below the lower trough of the pattern at 20660.

Source: SpreadEx | US TECH 100

Key Takeaways

Inflation in the US is expected to rise due to the impact of tariffs on input costs and could influence the Fed's decision on cuts, as Chair Jerome Powell has cited the tariffs' effects as a reason for caution. Although the market is uncertain about the timing and likelihood of a Fed cut, the probability of a September cut has dropped recently. However, if inflation fails to meet expectations again, traders might start pricing in a September rate cut. Lower borrowing costs coupled with falling consumer prices could boost the tech-heavy Nasdaq index to new highs.