{"id":183266,"date":"2025-06-11T13:50:34","date_gmt":"2025-06-11T19:50:34","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=183266"},"modified":"2025-06-11T13:50:36","modified_gmt":"2025-06-11T19:50:36","slug":"cpi-report-may-2025","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/cpi-report-may-2025","title":{"rendered":"Inflation Continues to Cool\u2014Does the Fed Still Have an Excuse to Not Cut Rates?"},"content":{"rendered":"\n

The latest <\/span>Consumer Price Index (CPI) report<\/span><\/a> was released on Wednesday morning, with inflation once again coming in below expectations for the fourth straight month. Core CPI, which strips out food and energy, rose just 0.1% month over month and 2.8% year over year. <\/span>Overall<\/span> CPI came in at 2.4%, <\/span>which <\/span>matched<\/span> or <\/span>came<\/span> in below some estimates<\/span><\/a>.<\/span><\/p>\n\n\n\n

While most prices <\/span>were<\/span> stable or declined, prices for toys <\/span>jumped<\/span> the most since 2023, and appliances posted their <\/span>largest<\/span> price hike in nearly five years.<\/span> Those two categories are among the most exposed to Chinese imports, which, of course, is part of the tariff calculus that we\u2019ll get into later.<\/span><\/p>\n\n\n\n

Regardless, the S&P 500 opened higher, Treasuries rallied, and traders are now betting there\u2019s a 75% chance the Federal Reserve <\/span>cuts<\/span> rates by September.<\/span><\/p>\n\n\n\n

The ultimate takeaway? Inflation has cooled and isn\u2019t a \u201cproblem\u201d anymore. The bigger question now is what the Fed does with that information.<\/span><\/p>\n\n\n\n

Does the Fed Have an Excuse <\/span>to Not Cut Rates<\/span>?<\/span><\/h2>\n\n\n\n

The Federal Reserve has a dual mandate:<\/span><\/p>\n\n\n\n

    \n
  1. Keep prices stable.<\/span><\/li>\n\n\n\n
  2. Maximize employment.<\/span><\/li>\n<\/ol>\n\n\n\n

    The keyword in No. 1 is \u201cstable.\u201d It doesn\u2019t necessarily mean low, although that\u2019s the target. It simply means stable, which <\/span>really<\/span> means predictable. You could make the argument that prices are unpredictable now, given the situation surrounding tariff policy, but I also think that\u2019s become an overblown story at this point.<\/span><\/p>\n\n\n\n

    Why? <\/span>The reality with tariffs is that most of them have <\/span>been scaled back<\/span> significantly<\/span>.<\/span> This timeline<\/span><\/a> from the <\/span>New York Times<\/span><\/em> paints that picture quite effectively. The president, on multiple occasions, has scaled back or delayed threatened tariffs while working through individual deals with countries. <\/span>He\u2019s<\/span> also been<\/span> forced into a corner by economic events, namely the bond market turbulence <\/span>that <\/span>is <\/span>very<\/span> closely linked<\/span><\/a> to the initial rollback of the broad-stroke tariffs announced <\/span>on April 2<\/span>.<\/span> <\/span><\/p>\n\n\n\n

    Currently, the biggest threat <\/span>that could run up<\/span> inflation is <\/span>with<\/span> China, where tariffs have risen to over 100% between <\/span>both<\/span> countries.<\/span> Given that the U.S.-China trading relationship is worth over half a trillion dollars, it\u2019s imperative that both countries <\/span>figure it out, but<\/span> as of today, news <\/span>broke that there could be<\/span> an agreement <\/span>ready to be signed<\/span><\/a>.<\/span> <\/span><\/p>\n\n\n\n

    Mexico and Canada\u2019s tariff situation can become troublesome if it’s renewed, but many of the tariffs have been rolled back, with only select industries <\/span>being targeted<\/span>, namely Canadian metals. <\/span><\/p>\n\n\n\n

    With this <\/span>being said<\/span>, I\u2019m not suggesting that tariffs are a complete nonissue, but it\u2019s also not a huge issue. <\/span>Yet, <\/span>it\u2019s<\/span> become the foremost catchphrase that economists continue to regurgitate <\/span>over and over again<\/span> despite an evolving narrative.<\/span> <\/span><\/p>\n\n\n\n

    The fact of the matter is that since January, we\u2019ve <\/span>been told<\/span> that inflation will rise and that tariffs will be the culprit. Instead, we\u2019ve seen the opposite. <\/span>Inflation continues to come in below forecasts, while tariff policy <\/span>continues to be<\/span> reversed, amended, or, in some cases, challenged by courts.<\/span> But<\/span> for some odd reason, I keep hearing that tariffs are going to create a catastrophic inflationary environment <\/span>any day now<\/span>.<\/span><\/p>\n\n\n\n

    So, in that case, I\u2019d lean toward making the argument that Chairman Jerome Powell and the Federal Reserve have<\/span>, in fact,<\/span> run out of excuses <\/span>to <\/span>not<\/span> <\/em><\/strong>cut interest rates<\/span>.<\/span><\/p>\n\n\n\n

    Here\u2019s my thought process on that:<\/span><\/p>\n\n\n\n