The U.S. July CPI is set to be released tonight, and global markets are holding their breath, with widespread expectations of a slight rebound in inflation, but not enough to change the Federal Reserve's rate cut path in September.
At 8:30 AM Eastern Time on Tuesday (8:30 PM Beijing Time on Tuesday), the U.S. Bureau of Labor Statistics will announce the July Consumer Price Index (CPI). According to consensus expectations compiled by Bloomberg:
The U.S. July CPI is expected to rise 0.2% month-on-month, down 0.1 percentage points from June, and year-on-year is expected to increase from 2.7% in the previous month to 2.8%; the core CPI (excluding food and energy) is expected to rise 0.3% month-on-month, up 0.1 percentage points from June, with the year-on-year increase expanding to 3.0%, the highest record since February.
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This data will also be a key signal to test whether the new round of tariffs imposed by Trump has already penetrated consumers' wallets. Wells Fargo pointed out that this data will further validate the price-boosting effect of tariff increases. The bank stated that the price transmission is still in the early stages, and the final burden of increased import taxes has not yet been clearly distributed among end consumers, domestic sellers, and overseas exporters. Meanwhile, consumer fatigue is intensifying, making the sustained rise in overall prices face resistance.
Given the sudden collapse of July's non-farm payroll data, most analysts believe that as long as inflation does not show extreme overheating, a rate cut in September is almost a foregone conclusion. Goldman Sachs assesses that as long as the core CPI does not exceed 0.44% month-on-month, the market will view tariffs as a short-term impact, with limited influence on rate cut expectations.
<h2>Will the tariff impact be short-lived?</h2>
Deutsche Bank expects a divergence in the short-term annualized trend of core inflation— the three-month annualized rate will rebound to 2.7%, but the six-month annualized rate is expected to drop to 2.4%. The reason behind this is that prices of tariff-sensitive goods such as automobiles and furniture will rise significantly, while the price increases of some services will slow down.
Goldman Sachs expects the core CPI to grow 0.33% month-on-month and 3.08% year-on-year, slightly above market consensus. The bank emphasizes that the July CPI report is expected to show four key trends.
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Used car prices are expected to rise 0.75% month-on-month, ending the previous consecutive decline;
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New car prices may decrease by 0.2%, reflecting inventory adjustments and production recovery;
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Airfare prices are expected to rise by 2%, partly driven by the summer travel peak;
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Tariff impacts are expected to directly contribute about 0.12 percentage points to the month-on-month increase in core inflation.
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Goldman Sachs assesses that as long as the core CPI does not exceed 0.44% month-on-month, the market will view tariffs as a short-term impact, with limited influence on rate cut expectations.
As companies are still digesting the inventory accumulated before the full implementation of tariffs, the current inflation rate has only slightly increased. Meanwhile, slowing demand has suppressed the price increases of services such as air travel, hotels, and motels, avoiding broader inflationary pressures. Glenmede's head of investment strategy and research, Jason Pride, stated:
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It is still not possible to fully see the impact of tariffs, but based on the current situation and the CPI data from June, consumers have so far borne about one-third of the tariff burden.
As pre-tariff inventories decline, companies may begin to pass on more costs to households in the coming months.
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Excluding the tariff factors, Goldman Sachs expects potential trend inflation to further decline, mainly driven by easing pressures from housing rents and the labor market. Goldman Sachs economists predict that by December 2025, the year-on-year increase in core CPI and core PCE will both be 3.3%; if the tariff impact is excluded, the two indicators will drop to 2.5%.
Nomura Securities pointed out, &#34;Investors will only question whether the Federal Reserve will delay the pace of easing when the service sector leads.&#34; This is because rising service prices often indicate sustained wage growth pressures, making inflation stickier and harder to decline.
<h2>Employment Stalls, September Rate Cut Outlook Unchanged</h2>
After the Federal Reserve's decision to keep interest rates unchanged at the July meeting, Chairman Powell reiterated that officials need more time to assess the impact of tariffs on the economy, showing that the Federal Reserve remains cautiously patient amid continued pressure from Trump to cut rates.
However, there are still internal disagreements. Governors Waller and Bowman, nominated by Trump, voted against the decision at the July meeting, supporting an immediate rate cut due to a weak labor market. If President's economic advisor Stephen Moore is confirmed by the Senate as a Federal Reserve governor, the market expects another dovish voice to be added.
Due to the collapse of July's non-farm payroll data, the market has significantly raised expectations for a rate cut in September, with the probability of a 25 basis point cut now as high as 89%. Strategist Cameron Crise pointed out:
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The market still expects that this year’s rate cuts are closer to two rather than three, and the September cut is basically seen as a &#34;done deal.&#34; To truly reverse this situation, not only would the inflation data released tomorrow (Tuesday) need to be unexpected, but the non-farm payroll data for August released on September 5th would also need to be surprising.
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If the inflation data is too hot, it may cause some officials to hesitate in supporting a rate cut. Hawkish officials insist that, with employment close to full capacity, the Federal Reserve has not yet achieved its inflation target. Federal Reserve official Musalem recently stated that while the inflation target has not been achieved, the labor market is still functioning well.
&#34;When the situation is critical, unless there is an extreme inflation scenario, the Federal Reserve will prioritize the labor market,&#34; said Roger Hallam, global rates head at Vanguard Asset Management, noting that the labor market has shown sufficient weakness, &#34;the likelihood of easing policy in September has significantly increased.&#34;
<h2>Uncertainty of Data Quality</h2>
Another easily overlooked difficulty in this data interpretation is the quality of data collection.
Due to budget and staffing cuts, the U.S. Bureau of Labor Statistics (BLS) has suspended price collection in some cities this year, with the cross-regional estimation ratio soaring to 35%, far higher than pre-pandemic levels. This means that the volatility of monthly data may be greater, and there may even be significant revisions later.
This also makes tonight's data not only a macroeconomic barometer in the eyes of the market but also a test of confidence in U.S. statistical agencies
<h2>As long as inflation meets expectations, US stocks are expected to maintain an upward trend</h2>
Nomura Securities analyst Charlie McElligott pointed out that the main concern for US stocks is the &#34;hot&#34; core CPI data driven by tariffs, which is seen as &#34;the only scenario that could trigger a market downturn,&#34; as the market has recently priced in expectations for the Federal Reserve to cut interest rates, and any signs of a delay in rate cuts could lead to adjustments.
JP Morgan's market intelligence team is optimistic about the inflation trend, believing that the current moderate increase is unlikely to trigger a bear market. They expect inflation to rise to 3.5% in the fourth quarter of this year and fall below 2.5% by 2026. Although hawkish comments may trigger short-term sell-offs, as long as inflation meets expectations, the market is expected to maintain an upward trend.
Regarding market reactions, JP Morgan's market department has provided a &#34;reaction function&#34;:
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Core CPI month-on-month &gt; 0.40%: S&amp;P 500 may fall more than 2%-2.75%;
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Core CPI month-on-month between 0.35%-0.40%: S&amp;P 500 index may fall by 75 basis points or rise by 25 basis points, with a probability of 25.0%
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Core CPI month-on-month between 0.30%-0.35%: S&amp;P 500 index may remain flat or rise by 75 basis points, with a probability of 35.0%;
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Core CPI month-on-month between 0.25%-0.30%: S&amp;P 500 index may rise by 75 basis points, an increase of 1.2%, with a probability of 30.0%;
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Core CPI month-on-month &lt; 0.25%: S&amp;P 500 index may rise by 1.5%-2%, with a probability of 5.0%.
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According to Goldman Sachs analysis, the market expects that after the CPI is announced tonight, regardless of whether it rises or falls, the volatility of US stocks will reach 0.70%, the highest level since May this year. Meanwhile, the volatility index (VIX) was only 15.8 before the data was released, at a low level since December last year.
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The US July CPI data will be released tonight, and the market generally expects a slight rebound in inflation, but not enough to change the Federal Reserve's path for a rate cut in September. Analysts believe that as long as inflation does not show extreme overheating, a rate cut is almost a foregone conclusion. Goldman Sachs and Deutsche Bank's forecasts for core CPI indicate that tariff impacts will have a short-term effect on prices, but overall consumer fatigue may suppress sustained price increases

- The U.S. Consumer Price Index (CPI) for July is set to be released, with expectations of a slight inflation increase that may not alter the Federal Reserve's interest rate path for September.  
- Analysts predict a 0.2% month-over-month rise in CPI, with core CPI expected to increase by 0.3%, reflecting the impact of tariffs on consumer prices.  
- Market reactions hinge on the CPI data, as any unexpected results could influence the Fed's decision on interest rates, with a significant probability of a rate cut in September.

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Deutsche Bank AG

Goldman Sachs

With the shadow of weak employment looming, as long as the US CPI does not "explode" tonight, the trend of interest rate cuts in September is difficult to reverse