July CPI, Powell, Trump, and the New York Stock Market: Conflicting Signals Surrounding Interest Rate Cuts

Based on a Yonhap News article from Aug 12, 2025, 11:17 PM

The New York stock market opened with strength on August 12, 2025, despite conflicting economic indicators, drawing significant attention from investors. The U.S. Consumer Price Index (CPI) report for July showed a general slowdown in inflation, but the core CPI, which excludes volatile items, paradoxically saw an accelerated increase, sending a mixed message to the market. However, the overall market sentiment focused on the 'slowing overall CPI,' raising expectations for an interest rate cut in September. This demonstrates the market's strong will regarding the Federal Reserve's (Fed) monetary policy decisions, while also reflecting the complex economic reality.

Powell's Dilemma: Conflicting CPI Data

The July CPI report presents a complex dilemma for Fed Chair Jerome Powell. The overall CPI rose by 0.2% month-over-month, a slowdown from the 0.3% increase in June. This can be interpreted as a positive sign that the pace of price increases is gradually easing, suggesting that the Fed's tightening policy is having an effect. Based on this indicator alone, it seems there is ample room for the Fed to consider a rate cut. In fact, the market focused on this point, pricing in a more than 90% probability of a September rate cut.

The problem, however, lies with the 'core CPI.' The core CPI increased by 0.3% month-over-month, accelerating from the 0.2% increase in June. Core CPI is a crucial indicator for understanding underlying inflation, as it excludes volatile items like food and energy. The rise in this index raises concerns that price pressures are still strong and that inflation could become entrenched in key areas such as the service sector and housing costs. This could be a decisive factor making it difficult for the Fed to rush into a rate cut. Powell must carefully decide how to interpret and act on these conflicting signals, as he has to consider both employment and inflation. A rate cut would be difficult with core inflation still at a high level, but delaying it would mean ignoring the slowing overall CPI and concerns about an economic slowdown.

Trump's Pressure: Monetary Policy as a Political Variable

Adding to this economic dilemma is a political variable: the blatant pressure from President Donald Trump on the Fed. Immediately after the July CPI was released, Trump directly targeted Jerome Powell, strongly urging an interest rate cut. He even went so far as to threaten to consider "serious litigation" if the Fed did not act. These remarks had an immediate impact on the market. The S&P 500 index briefly dropped, and market participants showed vigilance toward political uncertainty.

Trump's pressure is a serious issue because it could undermine the Fed's independence. The Fed is an independent institution that is supposed to make monetary policy decisions based solely on economic data, without being swayed by political influence. However, Trump's sustained attacks are putting the Fed's credibility to the test. Powell is in an awkward position, having to make the best decision for the economy while not appearing to bow to political pressure. Amidst market expectations and political pressure, Powell's next move is more critical than ever.

Market Trends and Future Outlook

Despite the conflicting signals, the New York stock market closed strong. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all finished higher. This indicates that the market is giving more weight to the slowdown in the overall CPI than the rise in core CPI, prioritizing expectations for a September rate cut. The CME FedWatch Tool reflected this market expectation, pricing in a 92.2% probability of a 25 basis point rate cut in September.

However, not all investors are feeling confident. Experts continue to warn that the rise in core inflation will likely confuse the Fed and economic commentators for months to come. Brian Jacobson, a chief economist at Annex Wealth Management, pointed out that "the core message is that tariff-driven inflation is likely a gradual process, not a one-time event," warning that inflationary pressures could persist. Furthermore, the market should not overlook the fact that political variables, such as Trump's remarks, can increase market volatility, as seen by the temporary drop in stock indices.

In conclusion, the current New York market is in a complex situation where optimistic expectations for a rate cut and concerns about persistent inflation coexist. The market is betting on a hopeful scenario where the Fed will cut rates, but warning signs like the core CPI are still making the market uneasy. Powell must navigate a difficult task of balancing market expectations, political pressure, and complex economic data. In this climate of uncertainty, investors should remain cautious and keep a close eye on the ever-changing market conditions.