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Why the Fed may not cut in September

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Jerome Powell, chairman of the US Federal Reserve, during a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington, DC, US, on Tuesday, July 9, 2024.

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Markets now firmly expect a September interest rate cut in the U.S., but the Federal Reserve has a strong reason to hold off, according to economist Carl Weinberg.

Money market pricing for a rate cut at the Fed’s fall meeting rose from around 70% to more than 90% on Thursday, according to LSEG data, after a softer-than-expected consumer price index print.

Fed Chair Jerome Powell had already bolstered expectations of such a move when he said earlier this week that there were risks in keeping interest rates too high for too long — comments interpreted as “modestly dovish” by analysts.

However, there are also risks to easing monetary policy that cast a cloud over the rate-cut outlook, Weinberg, chief economist at High Frequency Economics, told CNBC’s “Squawk Box Europe” on Friday.

“The Fed chair was very clear in his testimony this week … that inflation metrics and the economy in general are moving in the way that we kind of like,” Weinberg said.

September most likely date for a Fed cut but things can change, economist says

That includes unemployment at around 4%, inflation moving toward 2% and the economy growing “roughly” at potential, he said.

“But [Powell] also implied, well, why would we want to change anything if the economy is at full employment, with inflation where we want it to be, and it’s growing nicely? Why would we want to tinker with what we have right now? Why would you want to cut rates under those circumstances?” Weinberg continued.

“There certainly is noise, buzz and data to support a rate cut at [the September] meeting. But there also is a cloud hanging over that decision.”

While a fall cut might look likely now, a lot can change between now and the Fed meeting on Sept. 18, Weinberg added.

U.S. inflation is heading in the right direction, but is not sustainably close to its target yet, analyst says

Two more CPI prints are due before that date. The Fed next meets at the end of July, when markets have priced in only a 5% chance of a rate reduction.

Although U.S. inflation peaked lower than many other major economies over the last three years, it has also been slower to fall, leaving the Fed behind on the path of monetary easing.

The central banks of the euro zone, Switzerland, Sweden and Canada have all cut rates already this year, while the Bank of England’s August decision is seen on a knife edge.

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Economics

Inflation rate slipped to 2.1% in April, lower than expected, Fed’s preferred gauge shows

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Inflation rate slipped to 2.1% in April, lower than expected, Fed’s preferred gauge shows

Inflation barely budged in April as tariffs President Donald Trump implemented in the early part of the month had yet to show up in consumer prices, the Commerce Department reported Friday.

The personal consumption expenditures price index, the Federal Reserve’s key inflation measure, increased just 0.1% for the month, putting the annual inflation rate at 2.1%. The monthly reading was in line with the Dow Jones consensus forecast while the annual level was 0.1 percentage point lower.

Excluding food and energy, the core reading that tends to get even greater focus from Fed policymakers showed readings of 0.1% and 2.5%, against respective estimates of 0.1% and 2.6%.

Consumer spending, though, slowed sharply for the month, posting just a 0.2% increase, in line with the consensus but slower than the 0.7% rate in March. A more cautious consumer mood also was reflected in the personal savings rate, which jumped to 4.9%, up from 0.6 percentage point in March to the highest level in nearly a year.

Personal income surged 0.8%, a slight increase from the prior month but well ahead of the forecast for 0.3%.

Markets showed little reaction to the news, with stock futures continuing to point lower and Treasury yields mixed.

People shop at a grocery store in Brooklyn on May 13, 2025 in New York City.

Spencer Platt | Getty Images

Trump has been pushing the Fed to lower its key interest rate as inflation has continued to gravitate back to the central bank’s 2% target. However, policymakers have been hesitant to move as they await the longer-term impacts of the president’s trade policy.

On Thursday, Trump and Fed Chair Jerome Powell held their first face-to-face meeting since the president started his second term. However, a Fed statement indicated the future path of monetary policy was not discussed and stressed that decisions would be made free of political considerations.

Trump slapped across-the-board 10% duties on all U.S. imports, part of an effort to even out a trading landscape in which the U.S. ran a record $140.5 billion deficit in March. In addition to the general tariffs, Trump launched selective reciprocal tariffs much higher than the 10% general charge.

Since then, though, Trump has backed off the more severe tariffs in favor of a 90-day negotiating period with the affected countries. Earlier this week, an international court struck down the tariffs, saying Trump exceeded his authority and didn’t prove that national security was threatened by the trade issues.

Then in the latest installment of the drama, an appeals court allowed a White House effort for a temporary stay of the order from the U.S. Court of International Trade.

Economists worry that tariffs could spark another round of inflation, though the historical record shows that their impact is often minimal.

At their policy meeting earlier this month, Fed officials also expressed worry about potential tariff inflation, particularly at a time when concerns are rising about the labor market. Higher prices and slower economic growth can yield stagflation, a phenomenon the U.S. hasn’t seen since the early 1980s.

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German inflation May 2025

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19 May 2025, Berlin: Apricots are sold at a greengrocer for 7.98 euros per kilogram. Grapes and papaya are also on offer.

Photo by Jens Kalaene/picture alliance via Getty Images

Germany’s annual inflation hit 2.1% in May approaching the European Central Bank’s 2% target but coming in slightly hotter than analyst estimates, preliminary data from statistics office Destatis showed Friday.

The print compares with a 2.2% reading in April and with a Reuters projection of 2%.

The print is harmonized across the euro zone for comparability.

So-called core inflation, which strips out more volatile food and energy prices, dipped slightly from April’s 2.8% to 2.9% in May. The closely watched services print meanwhile eased sharply, coming in at 3.4% compared to 3.9% in the previous month.

Energy prices fell markedly for the second month in a row, tumbling by 4.6% in May.

Germany’s consumer price index has been closing in on the European Central Bank’s 2% target over recent months, in a positive signal amid ongoing uncertainty about the economic outlook for Europe’s largest economy.

Domestic and global issues have mired expectations for Germany’s financial future.

One the one hand, U.S. President Donald Trump’s tariffs could damage economic growth, given Germany’s status as an export-reliant country, though the potential impact of such duties on inflation remains unclear. But frequent policy shifts and developments have been muddying the picture.

On the other hand, Germany’s newly minted government is starting to get to work and has made the economy a top priority. Questions linger about when and to what extent the new Berlin administration’s policy plans might be realized.

The ECB is set to make its next interest rate decision on June 5, with traders last pricing in an over 96% chance of a quarter point interest rate reduction, according to LSEG data. Back in April, the central bank had cut its deposit facility rate by 25 basis points to 2.25%.

This is a breaking news story, please check back for updates.

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