New economic data show that Trumpflation, once framed as a temporary energy shock from the Iran war, is broadening into a wider price problem. The shift already produced three dissents at the Federal Reserve's July meeting and threatens the stock market's record run if it forces the Fed to raise rates.
Trailing 12-month U.S. inflation hit a three-year high of 4.2% in May, pushed there largely by the Trump-led Iran war's disruption to global oil supply. New data now show that pressure spreading well beyond energy, and the shift is starting to reshape Federal Reserve policy and threaten the stock market's record run.
Core inflation is broadening, not fading
Headline inflation eased to 3.5% in June from the May peak. But Core Personal Consumption Expenditures, which strips out food and energy, barely moved, slipping from 3.4% in May to 3.3% in June. The Cleveland Fed's Inflation Nowcasting tool expects Core PCE to tick back up to 3.4% in August.
That stickiness reflects wider trouble. Of 178 components in Core PCE, 52% carried trailing 12-month inflation above 3% in June. That share was 41% when President Trump announced his "Liberation Day" tariffs in April 2025. Carson Group strategists Sonu Varghese and Ryan Detrick pointed to that data as a sign inflationary pressure is broadening across the economy rather than fading with the energy shock that started it.
FOMC dissents break a decade-long pattern
Concern over entrenched inflation was the impetus behind three dissents at the Fed's July 28-29 meeting. The Federal Open Market Committee held rates steady in a 9-3 vote. All three dissenting bank presidents favored a quarter-point interest rate increase, marking the first time since 2016 that three FOMC members dissented in the same direction over a policy change.
A rate hike would test an AI-fueled rally
If Fed Chair Kevin Warsh and his colleagues are ultimately forced to raise rates, it could end the run that has carried the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite to new highs since early June.
Higher borrowing costs would not normally threaten stocks on their own. But much of the current AI data-center build-out is debt-financed, so a rate increase could force investors to reassess the valuation premiums built into the companies leading that expansion. Even a marginal slowdown in the build-out could push investors to adjust growth expectations for the broader market.
Trumpflation, once dismissed as a temporary energy shock, is now the variable the Fed and Wall Street can least afford to get wrong.
Source: Fool
Trading involves risk.
Risk Disclaimer
