The June 2025 CPI numbers came out mostly in line with expectations.  It was up 0.3% for the month and 2.7% year-over-year.

The median CPI was also up 0.3% for June, and the year-over-year median CPI was up 3.6%.

This is probably the best-case scenario for Fed officials.  It is their Goldilocks of not too hot and not too cold.

If the price inflation numbers had come in higher, this would have signaled that it is still a major problem.  It would have been very bearish for the market, as any hope for a rate cut in the near future would have been gone.

If the price inflation numbers had come in lower, this would have been taken as a signal of a slowdown in the economy.  It would have forced the Fed’s hand to start following the ideas of Trump – mainly lower interest rates.  While investors like the idea of lower rates, they don’t want lower rates because we are looking at a major economic slowdown.

Too Hot for Consumers

Price inflation is still high for American consumers, which is basically anyone living in the United States.  Even using the Fed’s own target of 2%, it is still running high.

There is nothing magical about 2%.  It just means that the central bank wants a continuous policy of mild price inflation.  For Americans, it just means that our money gets depreciated every single year.  The same dollar buys less and less.

With the CPI running at 2.7% for the last 12 months, it means we are losing this amount of purchasing power in just one year.  And this is on top of the higher prices we are already facing from the high price inflation in the few years prior.

So, while Wall Street and the Fed can celebrate the “moderate” inflation, Americans struggling to pay their bills get to see higher bills or less stuff to purchase.  It isn’t getting any better even if the price inflation rate has come down.

Recession?

The CPI numbers aren’t telling us much about a possible recession ahead.  This is why the Fed likes it right now.

But it doesn’t mean that a recession isn’t ahead.  It just means that consumers haven’t severely reacted to the possibility yet.

The boom/ bust business cycle isn’t dead.  The Fed hasn’t finally figured out some secret formula to prevent recessions forever.

The yield curve was still inverted for 2023 and much of 2024.  It hasn’t quite fully normalized yet because the Fed is not playing Trump’s game of lowering interest rates.  This is keeping the short-term yields close to the 10-year yield.  But things can change very quickly.

At the first major sign of a recession, the Fed will capitulate.  Trump will finally get his way, and he will blame the Fed for the recession because they were too late in lowering rates.  The Fed does deserve a lot of blame for the upcoming recession, but it isn’t because they were too late in lowering rates.