Barclays_US_Outlook_Much_too_early_for_a_Fed_pivot

Please see analyst certifications and important disclosures beginning on page 10.US OutlookMuch too early for a Fed pivotAlthough May's inflation estimates were soft, we retain ourview that it is just a matter of time until cost-push pressuresfrom tariffs feed through to consumer prices. We doubt theFOMC will take much signal, with next week's projectionslikely to show one fewer cut this year than in March.• May's CPI estimates were much softer than expected, with the core reading up just 0.13% m/m (2.8% y/y) and translations pointing to a 0.15% m/m (2.6% y/y) rise in core PCE. Even so, weretain our view that it is just a matter of time until cost pressures from new tariffs feed intoprices, consistent with surveys showing that businesses will eventually pass through costshocks.• The US trade policy picture remains in flux. US-China trade discussions in London did notbreak much ground, essentially rewinding to the truce negotiated in Geneva, which is still setto expire on August 10. The president is threatening to restore country-specific tariffsfollowing the end of that 90-day pause on July 9, as well as a further boost to sectoral tariffson autos. • With the FOMC widely expected to remain on hold next week, focus will be on the updatedSEPs. We expect the median participant to take on a more stagflationary flavor followingApril's tariff surprises, despite eased financial conditions from the weaker dollar, with higherinflation and downgraded GDP growth in 2025.  The dot plot is likely to show delayed ratecuts, with just one this year and three in 2026.May inflation data show little imprint from tariffs, yetCore CPI rose just 0.13% m/m (2.8% y/y), much less than expected (Barclays: 0.27%; consensus:0.30%). This softness was relatively broad based (Figure 1), with core goods prices registering aslight decline (-0.4% m/m), defying expectations of firming amid decreases in new and usedvehicle prices and the volatile apparel component. Core services registered an unusually soft0.17% m/m rise, reflecting a notable deceleration in owner's equivalent rent (Figure 2) andtenants rents. The service component was also held back by further declines in airfares andlodging, reflecting a continuation of cross-currents related to trade policy. Headline CPI inflationalso was soft, at 0.08% m/m (2.3% y/y), reflecting the general downtrend in gasoline prices priorin recent months, though this seems like to reverse course, with oil prices jumping in theaftermath of Israel's airstrikes on Iranian nuclear and ballistic missile infrastructure. Softness in CPI estimates was also evident in final goods PPI, which rose just 0.1% m/m (2.6%y/y) and has continued to track a soft trajectory since March. After folding in the latest PPIestimates and details for various service components, including weaker-than-expected gains inthe financial and healthcare components, we think that core PCE prices will likely rise 0.15%m/m (2.6% y/y) in May. This would be the third-consecutive ben