Stock prices in the U.S. hover near record levels as Wall Street prepares for a report on inflation rates
Inflation in the United States is on an upward trajectory in 2025, with the annual inflation rate projected to reach around 2.8% in July 2025 and head towards above 3% by year-end, including core inflation (which excludes food and energy) slightly surpassing 3%.
Tariffs and Inflation Pressures
President Trump's tariffs significantly contribute to these inflation pressures. Effective tariff rates have risen from about 2.5% at the start of 2025 to around 10.5% by July, with some tariffs reaching 20% or higher. These tariffs are causing higher prices for imported goods, especially in categories like household furnishings, recreational goods, used cars, and airline fares.
Fed's Interest Rate Decisions
The Federal Reserve (Fed) is likely to maintain or possibly increase interest rates to counter rising inflation, balancing inflation control with not overly hampering economic growth. Core Personal Consumption Expenditures (PCE) inflation—a preferred Fed inflation measure—is projected to reach about 3.1% by the end of 2025, suggesting the Fed may continue or even tighten its monetary policy.
The Fed faces a challenging environment where inflation is edging higher late in the year alongside below-trend economic growth, a situation sometimes described as "stagflation-lite".
Stock Market Response
Despite tariffs and inflation concerns, major U.S. stock indices have recently hit record highs. This resilience reflects investor confidence that inflation pressures may not escalate uncontrollably. Some sectors see rising costs, but overall price increases remain uneven with some categories showing mild gains or even deflationary trends (e.g., energy).
Food Price Inflation
Food prices, a major component of inflation, are expected to rise modestly in 2025 by about 2.9% overall, with food-away-from-home prices rising faster (around 4%) than food-at-home prices (around 2.2%).
Corporate Earnings
Notable changes in corporate earnings include Nvidia adding 0.3% and Advanced Micro Devices climbing 1.3% following an agreement with the U.S. government to share 15% of their revenues from chip sales to China. On the other hand, CEO Thomas Siebel called the first-quarter sales results for C3.ai "completely unacceptable". The company warned it may report an operating loss as large as US$124.9 million for its first quarter, causing its stock to tumble 23.5%.
AMC Entertainment reported that moviegoers paid more for tickets and spent more on food and drinks than ever before, contributing to a reduction in its yearly loss to 26.4%. Paramount Skydance's stock fell 1.6% following TKO Group Holdings' deal to distribute UFC numbered events and "Fight Nights" on Paramount+.
This complex interaction between tariffs, inflation, Fed policy, and market performance highlights ongoing economic uncertainty heading into late 2025.
Sources: [1], [2], [3], [4], [5]
This article was contributed to by AP business writer Elaine Kurtenbach and was written by Stan Choe.
- The tariffs imposed by President Trump are causing higher prices for imported goods, particularly in markets like household furnishings, recreational goods, used cars, and airline fares.
- The Federal Reserve (Fed) is expected to maintain or possibly increase interest rates to counter rising inflation in 2025, with core Personal Consumption Expenditures (PCE) inflation projected to reach around 3.1% by the end of the year.
- Despite tariffs and inflation concerns, major U.S. stock indices have recently hit record highs, reflecting investor confidence that inflation pressures may not escalate uncontrollably.
- Food prices, a significant component of inflation, are expected to rise modestly in 2025 by about 2.9%, with food-away-from-home prices rising faster than food-at-home prices. In the entertainment sector, AMC Entertainment reported a reduction in its yearly loss due to higher ticket and food sales from moviegoers.
