Hot CPI but Wall Street seeing 3 Fed rate cuts

The United States’ economic landscape is marked by rising inflation and divergent views within the Federal Reserve, as recent data and official statements reveal. The Bureau of Labour Statistics reported that the core Consumer Price Index (CPI), excluding food and energy, increased by 0.3% from June 2025, marking the fastest pace since January. Annual core inflation surpassed expectations, driven by services such as airfares, medical care, and recreation, though goods prices remained subdued despite tariff concerns. Meanwhile, Kansas City Fed President Jeff Schmid and Richmond Fed President Tom Barkin expressed confidence in a stable economy, arguing against an imminent interest rate cut. These developments, reported on August 12, 2025, carry significant implications for Singapore investors navigating global market dynamics.

The July CPI data paints a complex picture. Headline consumer prices rose 0.2% month-on-month, slightly below yearly forecasts, offering some relief amid concerns over tariff-driven price pressures. However, core CPI’s 0.3% monthly increase, fueled by services, signals persistent inflationary challenges. “Treasuries rallied and the S&P 500 opening higher,” though gains later moderated, reflecting cautious market optimism. Investors, buoyed by a softening labour market, are increasingly betting on a Federal Reserve rate cut in September, with derivatives markets indicating strong confidence. Yet, tariffs have had minimal inflationary impact so far, absorbed within corporate profit margins, as noted by economists. For Singapore’s capital markets, the uptick in US stock indices like the S&P 500 suggests opportunities in risk assets, but persistent services inflation warrants vigilance.

Within the Federal Reserve, opinions on monetary policy diverge sharply. Jeff Schmid, a voting member of the Federal Open Market Committee, argued that the recent CPI data does not justify a rate cut, stating, “I view this as a rationale for keeping policy on hold rather than an opportunity to ease the stance of policy.” The Fed has maintained interest rates between 4.25% and 4.5% throughout 2025, a “modestly restrictive” stance to temper inflation. Tom Barkin, a non-voting member, echoed this caution, describing the economy as “bumpy, but bearable” and the labour market as “unusual but stable.” Both officials highlighted a resilient consumer base unlikely to trigger significant layoffs, contrasting with colleagues who cite labour market weakness as a reason for easing. This split, with seven Fed officials in June forecasting no rate cuts in 2025, underscores uncertainty in policy direction.