The rate of inflation held steady in July as the New Administration imposed tariffs on almost all of our trading partners. This raises the question about what The Federal Reserve Board will do next month in response.
The Consumer Price Index (CPI) held steady in July at 2.7%. But that doesn’t tell the whole story.
Economists generally watch a core measure which excludes volatile food and energy prices. This measure showed prices increasing by 3.1%. It was only expected to increase 3.0%, which tells us that lower energy prices offset most of the inflation in the other rate.
Interestingly enough, the CBOE VIX “Fear Gauge” has since dropped to its lowest level in 2025. This gauges overall economic fear that investors have in the future.
Also the CPI Report and weaker jobs data that was reported on August 1st have traders implying that there will be two interest rate cuts by The Fed before December of this year. What a difference a couple of days can make.
Personally, I don’t believe that will happen.
The Fed has constantly spoken about the “efficient” use of interest rate cuts to drive the economy forward. What this refers to is the fact that they don’t want to cut interest rates, and then inflation go up again, so that they’d just need to raise the rates again in response.
This happened back in the 70’s and was a disaster, only adding to the pain of a bad economy. As such, they’ll probably wait until they’re sure that inflation is comfortably at their 2% annual rate goal before they do anything.
Time will tell. Maybe I’m wrong? We’ll see.
I’m writing this to remind you to be conservative in the management of your businesses. Market sentiment obviously changes on a dime.
Don’t make the mistake of thinking that we’re out of the woods quite yet. Given how supply chains work, it’ll take at least another three to four months for us to see the full inflationary effect of the tariffs that were put into place two short weeks ago.
Don’t go out on a limb for anything. The music could stop at any moment.
Let me leave you with this…
Billy Long, the current Commissioner of the IRS was fired by President Trump last week. He’ll now become our Ambassador to Iceland.
How bad does anyone need to screw up to be sent to Iceland? They made a country and no one showed up.
Long was a former Republican congressman and auctioneer from Missouri who had supported legislation to abolish the IRS while in Congress, where he served from 2011 to 2023. He had very little tax training. if any.
During a recent National Association of Enrolled Agents tax summit, he mistakenly said that tax season wouldn’t begin until President’s Day next year. The IRS was then forced to walk the statement back the following day.
Commissioner Long is the fourth or fifth commissioner of the Service, depending on how you count them, since the beginning of this year. Scott Bessent, the Director of The Treasury, will now take over the position until they can find a replacement.
And the drama at the IRS continues…
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
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