US Inflation Holds Steady at 2.7% in July, Rate Cut Expectations Surge

"US Inflation Update – July 2025: CPI steady at 2.7% as markets anticipate potential Federal Reserve rate cut next month."

US Inflation Holds Steady in July, Markets Bet on Fed Rate Cut

Washington, D.C. — U.S. inflation showed little change in July, fueling investor expectations that the Federal Reserve will cut interest rates in September.

The Consumer Price Index (CPI) increased 0.2% from June and 2.7% year-over-year, matching forecasts. However, core inflation, which excludes food and energy, climbed to 3.1%, up from June’s 2.9%.

Shelter costs remained the biggest driver of inflation, while energy prices fell—gasoline dropped over 2%—and food prices stayed flat.

Tariffs’ Early Influence

Recently imposed tariffs on goods like furniture, appliances, toys, and auto parts have started to lift prices in specific categories, though economists say the broader impact remains modest for now.

Rate Cut Odds Jump

With energy costs easing and headline inflation stable, markets now see a 90% chance of a Fed rate cut next month, CME Group data shows. The S&P 500 rose and Treasury yields moved higher after the data release.

Economist Jeremy Siegel said a rate cut is “inevitable,” predicting the Fed could lower rates by 50 basis points and aim for a 3% target by early 2026.

Fed Remains Watchful

Despite pressure from President Trump for immediate cuts, Fed officials stress they will remain data-driven, monitoring labor market conditions before taking action.

The upcoming September Fed meeting will be a key moment for policymakers, investors, and households hoping for relief from high borrowing costs.