June CPI Preview: The impact of tariffs is expected to become apparent, will it dampen interest rate cut expectations?

The United States has been wielding the "tariff big stick" for several months, and the market is highly concerned about its actual impact on inflation. Major investment banks generally expect that the cost of tariffs will begin to be passed on to consumer prices.

The U.S. Consumer Price Index (CPI) data for June, set to be released on Wednesday evening Beijing time, will test whether tariffs have finally begun to push up prices and provide clues for the Federal Reserve's interest rate cut path.

Currently, the market generally expects a month-on-month increase of 0.3% in the June CPI, a significant acceleration from May's 0.1%; the June core CPI is also expected to rise by 0.3% month-on-month, also higher than May's 0.1%. The expected annualized core CPI range is relatively narrow, between 2.8% and 3.1%.

Analysts from major investment banks such as Goldman Sachs and Deutsche Bank generally believe that the impact of tariffs will become more pronounced in the second half of the year, but there is disagreement on whether this price increase constitutes sustained inflationary pressure. Goldman Sachs and JPMorgan Chase tend to believe that its impact will last for a while and elevate the inflation center; Wells Fargo stated that the core inflation rise driven by tariffs "is more like a bump rather than a surge."

Currently, the money market prices the probability of a Federal Reserve rate cut on July 30 at less than 5%, but still fully accounts for two 25 basis point cuts before the end of the year, consistent with the Federal Reserve's own forecasts. The Federal Reserve's internal attitude towards the interest rate outlook is cautious, with a general expectation that the tariff effect will push prices higher before the end of the year. Some officials have hinted that if the price increases triggered by tariffs are judged to be a one-time shock, it may support a rate cut in July.

Goldman Sachs: The impact of tariffs will accelerate in the second half of the year

Goldman Sachs expects the core CPI for June to rise by 0.23% month-on-month, below the market consensus of 0.3%, corresponding to an annualized increase of 2.93%. The overall CPI is expected to rise by 0.30% month-on-month, consistent with market consensus. Their report breaks down four key drivers in detail:

1. A 0.5% decline in used car prices (transmission of auction price signals);
2. A moderate increase of 0.3% in auto insurance costs (monitored by online databases);
3. A 1% rebound in airfare prices (seasonal disturbances and basic fare increases at play);
4. Tariffs exert an upward pressure of 0.08 percentage points on household goods and entertainment communication products.

Goldman Sachs expects that in the coming months, tariffs will have a greater push on monthly inflation, with the core CPI monthly increase falling in the range of 0.3% to 0.4%, and predicts that the annualized core CPI increase in December 2025 will be 3.1%, with the impact of tariffs excluded being 2.3%. Chief Economist Joseph Briggs stated that if the June data does not raise alarms, it will support the prediction of starting rate cuts in September and a total rate cut of 75 basis points for the year.

Regarding market reactions, Goldman Sachs' trading department pointed out that the pricing of S&P 500 index straddles indicates that the market expects only a mild volatility of 0.57% at tomorrow's close, which may reflect a relatively calm expectation of the market's reaction to this CPI data

Wells Fargo: Inflation Rises but Not Enough to Alarm the Fed

Wells Fargo stated that data may show inflation starting to strengthen again, but at this stage, it is not enough to alert Federal Reserve officials.

The bank pointed out, “With a weak labor market and further easing of service sector inflation, the rise in core inflation driven by tariffs looks more like a bump rather than a surge.”

Most Federal Reserve officials are cautious about the interest rate outlook, expecting consumer prices to rise due to tariff effects before the end of the year. However, some officials, such as Christopher Waller and Michelle Bowman, have suggested that the price increases triggered by tariffs may be one-time events, and if inflation pressures remain manageable, rate cuts could be considered as early as the July meeting.

Deutsche Bank: Market Has Priced in 10% Tariff Hike Expectations

According to a research report from Deutsche Bank, based on its rule of thumb that a 0.1 percentage point increase in CPI corresponds to a 1.0 percentage point increase in the average tariff rate, the current market pricing may have already reflected expectations of about a 10% increase in the average tariff rate.

The bank's data shows that the market's year-on-year CPI expectations excluding energy prices for May 2026 have risen by about 0.8-0.9 percentage points compared to pre-U.S. election levels. Analysts noted that this change mainly reflects market expectations regarding the impact of tariff policies.

For the specific data in June, Deutsche Bank economists predict a month-on-month increase of 0.55% in energy prices and a 0.37% increase in food prices.

JPMorgan Chase: Upside Risks, but Real Impact at Least a Month Away

JPMorgan Chase's Market Intel department believes that the risk-reward for the upcoming CPI data release is skewed to the upside, meaning the likelihood of data exceeding expectations is greater, but the market is still waiting for signals of the "potential worst-case scenario" of inflation triggered by tariffs.

The bank agrees with its economists' view that there may be a price surge in the future, but points out that it will take at least a month for data that could truly panic the market (such as showing tariff impacts significantly exceeding expectations) to emerge. The bank emphasizes that if this data meets expectations, market focus will shift to the trade policy deadline on August 1, the non-farm payroll data on August 1, and the next CPI data on August 12.

JPMorgan Chase noted that this data is unlikely to significantly change expectations for Fed rate cuts. However, the bank observed that Federal Reserve officials, including Chicago Fed President Goolsbee, recently indicated that new tariffs have cast a shadow over the inflation outlook, which may mean that any rate cut actions will be delayed. Goolsbee stated that the latest tariffs on goods from Canada and Brazil could raise new inflation concerns, forcing the Fed to keep rates unchanged.

For different scenarios, JPMorgan Chase provided a detailed market sensitivity analysis:

When core CPI month-on-month growth exceeds 0.37% (probability 5%), the S&P 500 index is expected to drop by 1%-2%;

If in the 0.32%-0.37% range (probability 25%), the index is expected to drop by 0.5%-1.25%;

If the data is below 0.23% (5% probability), the index will rise by 1.5%-2%