"The Fed's inflation fears are beginning to come true"

Rising prices for a range of products, from coffee and audio equipment to home furnishings, fueled inflation in June, in what economists see as evidence that the Trump administration's import tax hikes are being passed on to consumers.

Overall consumer prices rose 0.3% in June, an annual rate of about 3.5%, after a 0.1% increase in May.

Economists—and Federal Reserve (Fed) officials—expect inflation to pick up steam this summer as the delayed impact of tariffs is passed on to businesses, and June data suggest that central bank policymakers, in particular, may remain reluctant to cut interest rates until more information becomes available.

The impact of the tariffs could ultimately prove to be a temporary, one-time adjustment. However, with Trump still considering final tariff levels and the threat of imposing higher tariffs as early as August 1, the inflation outlook remains uncertain.

“The report showed that the tariffs are starting to be felt,” said Omair Sharif, director of Inflation Insights. “Clothing prices rose, home furnishings prices soared, and recreational products increased.”

These are massively imported items, and the increases were substantial. Prices for audio and video equipment rose 1.1% during the month and 11.1% annually, the largest increase recorded in a category where globalization had generally resulted in stable or declining prices.

This is likely a sign of caution for the Fed, which has faced almost daily criticism from Trump for failing to cut interest rates, a step central bankers have been reluctant to take until it is clear where the tariffs will leave the US economy.

In a speech delivered Tuesday in Washington, Boston Fed President Susan Collins cautioned that she still believes higher import taxes will fuel inflation and, at the same time, reduce growth and employment. However, she added that strong balance sheets, both for businesses and households, could help absorb and mitigate the impact.

The impact of tariffs could be mitigated by businesses' ability to reduce their profit margins and consumers' ability to continue spending despite rising prices. Consequently, the adverse impact of tariffs on labor market conditions and economic growth could be more limited, Collins said.

Trump claimed on social media that consumer prices were "LOW" and reiterated his call for the Fed to cut rates. Consumer prices were about 1.2% higher in June compared to December, the last full month before Trump began his second term.

White House press secretary Karoline Leavitt said the fact that core inflation rose less than expected “demonstrates that President Trump is stabilizing inflation.”