Financial FAQs
“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent on a seasonally adjusted basis in June, after rising 0.1 percent in May, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.7 percent before seasonal adjustment.” BLS.GOV
June is the month that the Trump tariffs are beginning to raise the price of imported goods, which is pushing the inflation rate higher.
The first inflation report is the Consumer Price Index (CPI) on retail goods and services (see graph). It rose to 2.7 percent in June from a four-year low of 2.4 percent, which is why the Fed is still on hold with further rate cuts. It fears that lowering their Fed funds short-term rate could trigger an inflation panic, since it would speed up economic activity.
This would in turn panic bond holders who fear higher inflation and demand higher rates that control mortgages and yields on Treasury securities that fund the national debt, when annual debt payments are already $1 trillion.
Gas prices and housing costs rose. Prices fell for new and used vehicles, hotels and airfares. So, the inflation problem is with goods, while the service sector price declines showed that consumers are dining out and traveling less because of the uncertainties generated by a tariff war.
Why should consumers spend more when the prices of cars and other durable goods that last more than three years, and are mostly either manufactured overseas or the parts are imported, will be hit by the tariffs? And don’t forget Trump wants to dock every country in the world that exports to us with at least a 10 percent tariff rate
This is before the appeal by the Trump administration of the Foreign Trade Court ruling that all reciprocal tariffs must be approved by congress is decided! How is anyone to know what the final tariffs will be, in that case?
There is more to come this week with wholesale inflation (Producer Price Index) and the Fed’s favorite, Personal Consumption Expenditure index (PCE), to follow.
So why are the financial markets rallying to new highs as we speak? It is blind faith, in my opinion, that TACO Trump will chicken out again on the higher import taxes just announced on the likes of Japan, the EU, and even Brazil where we already have a trade surplus from exporting more to Brazil more than we import.
Is it that Trump loves the drama and can’t resist firing broadsides at what he doesn’t like? Or, more likely he desperately needs to collect import taxes to bring down the huge national debt brought on with the tax cuts, but without causing more inflation, something he promised to bring down on ‘Day One’.
How can he keep his promise to lower inflation while he keeps hounding the Fed to lower interest rates sooner (that would boost inflation)? He can’t, in a word, because of his need to cut taxes. So he is raising taxes on everyone else dependent on imports.
Harlan Green © 2025
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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