From Cleveland Fed today:
Figure 1: Year on year core CPI inflation (blue), core PCE (tan), Bloomberg consensus of 7/11 (teal triangle). June, July 2025 observations are Cleveland Fed nowcasts as of 7/11. Source: BLS, Cleveland Fed, Bloomberg.
From Cleveland Fed today:
Figure 1: Year on year core CPI inflation (blue), core PCE (tan), Bloomberg consensus of 7/11 (teal triangle). June, July 2025 observations are Cleveland Fed nowcasts as of 7/11. Source: BLS, Cleveland Fed, Bloomberg.
The Cleveland Fed also provides quarterly inflation forecasts at the same link. The PCE deflator forecast for Q3 is % y/y, core PCE %. From the FOMC’s June summary of economic protections, the median 2025 PCE deflator eatimate is 4.0%, core 3.1%. The year-end fed funds rate forecast in the June SEP was 3.9% vs 4.33% today. So if the only thing on policy makers’ minds was realized inflation, and if the Cleveland Fed forecast for Q3 works out for Q4, there’d be room for about 50 basis points of cuts by December.
There are a lot of ifs in there. Inflation may come in below the FOMC’s recent guess, but it has been accellerating, and tariffs are likely to keep inflation above target. The latest round of FOMC minutes was full of tariffs and uncertainty – not conducive for rate cuts when policy is roughly neutral as it stands. We haven’t seen enough from ICE brownshirts to know what effect they’ll have on labor supply, but that new budget sure suggests labor supply will be restricted. That’s an inflationary supply shock, same as tariffs.
So while the written-down data mostly suggest rate cuts soon, I can see reason for doubt.