Fed Holds Rates as Inflation Eases – July Cut Seems Possible

May’s inflation numbers came in soft, and the Federal Reserve is staying patient. The latest data showed core PCE inflation rose just 0.1% for the third month in a row, marking the calmest stretch since the pandemic. That gives the Fed more breathing room, though rate cuts are not guaranteed just yet.

The Fed’s preferred inflation gauge excludes food and energy and is now showing steady disinflation. On the surface, that supports the case for easing policy. But officials, including Chair Jerome Powell, want to see more evidence before making any move. Powell is scheduled to speak to Congress this week, where he’s expected to stick with the “wait and see” message.

No Cuts Are Expected Before July 30

At its June meeting, the central bank kept the benchmark rate unchanged. It also projected two rate cuts by the end of 2025. However, the timeline remains flexible, especially with tariff policies and geopolitical risks in the mix. Fed Governor Christopher Waller said last Friday that inflation from tariffs will likely be temporary and that there’s room for cuts as soon as July. The next rate decision is on July 30.

The market is starting to price that in. The yield on the 10-year Treasury is holding near 4.2%, while the CME FedWatch Tool shows rising odds of a cut next month. That could be good news for rate-sensitive sectors, including real estate, tech, and consumer discretionary.

Investors who want to keep up with all of the latest economic data can do so with the TipRanks Economic Indicators Dashboard.

What it means for investors

For investors, the focus now shifts to consumer spending, income trends, and the broader impact of tariffs. Household spending remained modest in May. Inflation-adjusted disposable income rose 0.6% over the last three months, the best run in over two years. However, consumer sentiment has declined, partly due to uncertainty surrounding trade policy.

Oil prices may also add pressure in the weeks ahead. After U.S. airstrikes in Iran, Brent crude is expected to climb. If the Strait of Hormuz is disrupted, oil could spike toward over $100 per barrel, potentially pushing inflation back up.

The bottom line is that Inflation looks tame, and the Fed is holding steady. But the path to cuts remains data-dependent. July could bring the first move, but that hinges on how inflation, tariffs, and spending evolve in the coming weeks. Stay tuned.