US wholesale price surge dims chances of Fed half-point cut
A sharper-than-expected rise in U.S. wholesale prices in July has largely wiped out prospects of a 50-basis-point rate cut by the Federal Reserve in September, though markets still expect a quarter-point reduction next month, followed by another in October.
Producer prices rose 0.9% from June, driven by higher costs for goods and services, including machinery and equipment wholesaling, the Labor Department said Thursday. Economists warned that these costs could filter through to consumers, with inflation expected to pick up modestly in the second half of 2025.
“The pass-through of tariffs into consumer prices will likely strengthen in the coming months,” said Ben Ayers, senior economist at Nationwide.
The rise in services inflation is a particular concern for policymakers such as Chicago Fed President Austan Goolsbee, who has warned of inflation pressures spreading beyond tariff-hit goods.
Markets, which previously saw a slim chance of a half-point cut, have now priced out that possibility. San Francisco Fed President Mary Daly also told the Wall Street Journal that such a move would signal a level of urgency on jobs she does not share.
U.S. Treasury Secretary Scott Bessent, who is overseeing the search for a successor to Fed Chair Jerome Powell, has argued for deeper cuts, but said Thursday that the Fed could start with a quarter-point move.
Click here for more on Finance and Investing
