US inflation rises to 2.4% as Fed faces policy uncertainty

"The latest US inflation data came in slightly lower than expected, albeit still a rise, with headline CPI lifting to 2.4%, up from 2.3% last month. Meanwhile, core inflation held steady at 2.8%. These figures reinforce the Federal Reserve's recent assessment that inflation remains ‘somewhat elevated,’ adding pressure to the balancing act between maintaining price stability and managing employment risks.

“Energy declined by 1% over the month as the gasoline index fell – something which has now repeated twice in three months. However, throughout that same period electricity prices have continued to climb, feeding into this rise and potentially reflecting growing demand.

“While the direct impact of tariffs is still unfolding, the depletion of Q1 stockpiles means businesses are now turning to international supply chains to replenish inventory. This dynamic will make inflation data even more critical as a leading indicator in the months ahead. Trade figures already highlight the effect of protectionist policies, with US car and container imports seeing a significant decline in May due to tariff-related disruptions.

“Looking ahead, the timing of rate cuts remains uncertain. The market does not fully price in another reduction until October, potentially setting the stage for further tension between the Fed and Donald Trump, who has expressed frustration over its reluctance to ease policy.

“Meanwhile, Trump’s announcement that a decision on the next Federal Reserve chair is coming ‘very soon’ raises concerns about market stability. With Jerome Powell’s term as Chair extending until May 2026, the prospect of a ‘shadow’ Chair influencing forward guidance this far in advance could inject additional volatility into financial markets. Investors will be watching closely to assess how this development shapes monetary policy expectations moving forward.”