Tariff Pressures Rattle Markets as U.S. Inflation Data Clouds Fed Rate Outlook

U.S. consumer price data released on Tuesday showed signs that tariff-related inflation is starting to take hold, sending Wall Street’s major indexes — the S&P 500 and Nasdaq — retreating from their record highs. The slight increase in prices for items like coffee and furniture, contrasted with stable prices for currently tariff-exempt goods such as cars, has led traders to reduce their expectations for interest rate cuts from the Federal Reserve in 2025.

Market focus now shifts to producer price index (PPI) data due later today, which may expose deeper inflationary trends not yet passed on to consumers. Investors are especially attentive, as rising input costs could validate Fed Chair Jerome Powell’s caution against lowering rates prematurely. As a result, market expectations for rate cuts have been trimmed from 50 basis points to around 43 basis points for the remainder of the year.

Meanwhile, former President Donald Trump took a sharply contrasting view of the inflation data, using his Truth Social platform to call for immediate rate cuts and again criticize Powell’s leadership. Trump has previously pushed for Powell’s resignation and suggested Treasury Secretary Scott Bessent as a possible successor, although he also expressed satisfaction with Bessent’s current role.

As political tension surrounds the Fed’s independence, Wall Street is also digesting early earnings reports from major U.S. banks. JPMorgan Chase and Citigroup beat expectations on Tuesday, but their stock responses were mixed. Investors are now looking ahead to earnings from Goldman Sachs, Morgan Stanley, Bank of America, and consumer bellwether Johnson & Johnson for further market direction.

Across the Atlantic, European markets showed signs of caution as UK inflation data looms. Britain’s FTSE reopened after hitting a record high but ended Tuesday with its steepest decline since April’s tariff-related disruptions. With the Bank of England also grappling with persistent inflationary pressures, Wednesday’s global market outlook remains uncertain, shaped heavily by inflation data and central bank policy expectations on both sides of the Atlantic.

Source: Reuters