Inflation held steady in July, defying expectations for hotter price growth as tariffs come into effect

The year-over-year inflation rate held at 2.7% in July, below the expected 2.8% but still elevated.

New tariffs on copper products and dozens of countries went into effect in early August, adding to the ones already applied during Trump’s second presidency so far. On Monday, Trump extended the pause on higher China tariffs until November. It could take a while to see how the newer tariffs impact inflation.

“Higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen,” Fed chair Jerome Powell said in a July 30 press conference after the Fed decided to hold interest rates steady for the fifth consecutive time.

The next scheduled Federal Open Market Committee meeting, where members will make a rate decision, is in September. That could be when the US sees the first rate cut this year, following the weaker jobs report earlier this month, which included much cooler job gains in May and June than previously reported. Before the new inflation report, the CME FedWatch tool, which estimates probabilities of future Fed rates based on market moves, showed a roughly 80% likelihood of a cut in September.

Consumers haven’t taken the brunt of tariffs’ impacts, at least not yet. A Goldman Sachs report on Sunday said US consumers have absorbed less than a quarter of tariff costs through June but think it will jump to 67% by October, assuming newer tariffs have a similar impact to previous ones. Businesses and foreign exporters account for the remaining incidence of the tariffs.

Diane Swonk, chief economist at KPMG US, told PBS News Hour that “the tariffs are so large that they also squeeze profit margins and that means cost-cutting or layoffs.” So far, US layoffs have remained at their low rate.

“What we’re worried about is a sort of stagflationary kind of nature of these tariffs because they’re so large and they’re just unable to be completely absorbed by either firms themselves or completely passed on to consumers 100 percent,” Swonk said.

This is a developing story. Please check back for updates.

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