Underlying U.S. inflation rose in June by less than expected for a fifth month, as lower car prices helped offset gains in other goods exposed to tariffs. Ayesha Tariq, Macrovisor's Co-Founder speaks about the Fed's path ahead.

Washington

Donald Trump has signed an order to impose tariffs imports into the U.S. from countries including China, Mexico and Canada.

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Underlying U.S. inflation rose less than expected, with lower car prices offsetting increases in goods affected by tariffs. Ayesha Tariq of Macrovisor noted that while some components of the Consumer Price Index (CPI) are rising due to tariffs, the full impact is still unfolding, and the Federal Reserve is waiting to see the complete effects before making policy changes. 

Tariq explained that the Fed is taking a cautious approach, holding off on rate cuts amid economic uncertainty and a cooling but stable labor market. She also discussed market expectations around the potential transition to a new Fed chair and suggested that U.S. tech stocks remain a key driver of equity performance.

Tariq: Fed waiting for tariffs to fully kick in

The thing about these CPI prints is the headline number comes out and then we spend a bit of time analyzing what's actually going on beneath the surface. And yesterday was a case in point because even though the core CPI number surprised to the downsides there were strong signals showing that consumer goods have started to feel the effect of tariffs even though other parts of the baskets are pulling down the overall numbers. So how do you read the impact this CPI print is going to have on potential Fed policymaking. Good morning Jim. Thank you for having me back on the show. So you're absolutely right. And I think we saw a little bit of this even last month as well where the initial reaction was extremely positive. And then after that when we started looking under the surface as you rightly pointed out we see that there are you know portions of the CPI numbers that have started to go up. Now I think a lot of the impact from you know the stocking up prior to the tariffs is still feeding through. So we're still seeing some of those lower prices continue. However our view was that we're going to start to see some spikes in July which is you know the June reading and perhaps the July reading will give us a little bit more you know of a clue as to what's happening. Now the interesting thing though is we saw the huge tariffs and then of course there was a pause. So likely that we won't see as massive of an impact as was first effect expected. Right. So yeah I think the Fed is still waiting to see what happens once tariffs kick in completely. Yeah. Yeah. Do you think it's fair to say that the market narrative has shifted towards the Feds being inclined to keep rates on hold so long as the Fed chair is still Jerome Powell. Is that the narrative in the market now because of these potential inflationary signs to come. So I think you know the market always needs someone to blame. And right now it seems like Fed chair Powell is the villain. But if you ask me he's not really doing the wrong thing. And it's not just his decision of course. Right. We have a committee who makes the decision. And to be fair you know they've been on a rate cutting path. They've just held back for a while because of all the uncertainty. I don't think that they're doing particularly the wrong thing here because there's no harm in sort of pushing back a cut for a meeting or two. It's not like they're saying they're never going to cut or this is the terminal rate. It's just that they want to see the effect of what's happening in the economy. And on the flip side you have a labor market that is cooling but not cooling drastically. So they do have some breathing space here to make a more informed decision. Let's say. How are you looking if at all to play the transition between between the two Fed chairs. And now you know Scott Besson has publicly come out on television. He told our colleagues yesterday that the formal process of selecting a new chair has begun. Is there a trade to be done here or is it ready already in the price because markets are already anticipating a more dovish successor to Powell. So I think there's always an element of surprise with any kind of situation. So even though we like to say things are priced in I always believe nothing is 100 percent priced in. Now it depends on who comes. I think what's going to happen from here until when the Fed chair actually leaves when Chair Powell leaves is that we're going to see sort of a shadow Fed kind of situation where we're going to hear a lot of talk about you know the new Fed chair being very dovish. So there is I think a trade to be made here. We like long end rates higher and you know shorter end rates lower because that's where the narrative will take us. And so I think accumulating some of those long end bonds may be a good idea here if we're looking for you know a return fixed income return. Yeah. I should let me ask you about earnings season. We think we kick things off yesterday with some of the banks earnings mixed bag of results. There's more coming later today. But notable in the price action yesterday that it was really only the tech sector that was in the green. Everything else was trading in the red. To what extent do you think it is still going to be the tech sector driving U.S. equity performance in the coming months. So I think the tech sector is still front and center. And that's sort of what's driven American exceptionalism over the last two years. Right. And I think it's a little hard to get away from that. When you look at positioning you still see that global positioning is still in the American tech sector whether you know it's you know semiconductors or software. We actually think software has a lot of catching up to do and there's potentially some you know as you know opportunities there. But from what we've seen they've not failed us so far. The tech sector the you know at least the max seven so to speak. And I think people will continue to sort of put their money behind you know the tech sector in the U.S.

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Tariq: Fed waiting for tariffs to fully kick in

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