Trump tariffs, inflation fears have rattled investors, leading to a sell-off in US stocks as rising prices dampen hopes for interest rate cuts. President Trump dismissed concerns about inflation, which reached 2.7%, and urged the Federal Reserve to lower rates.
Trump posted on social media, calling for a three-point Fed rate cut, insisting inflation remains low. However, recent data shows inflation increasing rapidly, worrying economists and investors. UBS noted the rise was the fastest this century, sparking market anxiety.
Wall Street reacted swiftly as the S&P 500 dropped 0.4%, with losses spreading to Asian and European markets. S&P futures also remained slightly down in premarket trading. Meanwhile, the CME FedWatch tool showed September rate cut odds falling from 75% to 50%. Rising inflation now makes Fed cuts less likely as higher rates are the main tool to fight price increases.
Economists link the inflation spike directly to Trump’s trade tariffs. For months, analysts expected tariffs to push prices higher, and June’s consumer price index confirmed the trend. Pantheon Macroeconomics reported that core goods prices, excluding autos, rose 0.5%, their highest increase since 2022.
Deutsche Bank analysts described a “pipeline” of inflation as tariff effects unfold further. Household appliance prices jumped 1.9%, the largest monthly rise since 1999. They warned that more price increases are likely in July as tariff costs fully impact the market.
Higher inflation also affects government borrowing costs, pushing US Treasury yields up. The 30-year yield rose 4.3 basis points, closing above 5% for only the tenth time since 2007. A weaker US dollar added pressure by making imported goods more expensive, further fueling inflation.
The Trump tariffs’ inflation effect leaves the Federal Reserve unlikely to deliver the rate cuts Trump demands. While Trump criticizes Fed Chair Powell, the Federal Open Market Committee and its economists remain focused on controlling inflation. They are unlikely to cut rates while rising prices threaten economic stability.
Investors now face a tough environment as expensive borrowing and trade policies weigh on markets. Stocks typically thrive with cheap money, but the tariff-driven inflation trend points in the opposite direction.
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