(Not So) Fun Fact: It is estimated that roughly 85 percent of all U.S. imports from Canada and Mexico are now tariff-free due to USMCA compliance.

An Eye on PPI and CPI

What’s Happening: This week, the Producer Price Index (PPI) and the Consumer Price Index (CPI) were released, showing inflation data for businesses and consumers for the month of August. PPI showed that month-over-month final demand declined by 0.1 percent – much lower than the expected rise of 0.3 percent – while the year-over-year change was 2.6 percent. Monthly CPI on the other hand came in slightly higher than expected, rising 0.4 percent in August compared to an expected 0.3 percent. Year-over-year CPI rose 2.9 percent, marking the highest inflation read since January. Core CPI met expectations and rose 3.1 percent year-over-year. President Trump went to Truth Social to celebrate “No Inflation” after the PPI data release and called on Federal Reserve Chair Jerome Powell to lower interest rates.

Why It Matters: The lower-than-anticipated figures in the PPI report come as welcome news for the Trump Administration and those looking for the Fed to lower interest rates this month. As of now, the odds of a 25-basis point (bp) interest rate cut sit at 91 percent, while the odds of a 50 bp cut are at 10 percent, up from 0 just a few weeks ago. By the end of the year, odds are at 77 percent that the Fed target rate will sit between 350 to 375 bps, a rather sharp decline from the current 425 to 450 target rate. This shift toward more rate cuts may be partially due to less inflationary pressure from tariffs than previously expected. More likely, the Fed will be easing rates after the Bureau of Labor Statistics published its preliminary benchmark revisions that showed a labor market substantially weaker than originally thought. The annual revisions showed 911,000 fewer jobs were created between April 2024 and May 2025 than previously reported. The monthly jobs report, published before the annual benchmark revisions were released, showed that just 22,000 jobs were added in August while revisions to prior months showed a net job loss in June, the first since the COVID-19 pandemic in 2020. It is possible that these revisions are related to tougher economic conditions for U.S. companies stemming from added tariff costs, as companies reduce their workforce or halt hiring to lower labor costs.

While PPI came in low, CPI remains well above the target level of 2 percent, and nearly all progress made since January in achieving a lower CPI read has been erased. On a monthly basis, the prices of sewing machines, coffee, tomatoes, certain clothing, and apples rose between 3.5 and 9.1 percent. Audio equipment prices are over 12 percent higher year-over-year while other trade-related products are experiencing well over 5 percent annual inflation. As companies continue to shift the cost of tariffs to consumers going into the fall, there may continue to be upward pressure on prices that keeps CPI at a less-than-desirable spot.

Looking Ahead: The Fed will have to continue to balance inflation data and a weaker labor market. The greater the divergence between CPI and PPI, the more difficult it becomes for interest rate cuts. The likelihood of at least one rate cut is extremely high, but the probability of more cuts this year will hinge on future inflation data, which could easily come in higher than expected and cause the Fed to rethink its strategy. In the event tariffs are struck down by the Supreme Court, the likelihood of rate cuts will probably increase as the prospect of further tariff-driven price hikes decreases. Despite that scenario’s damage to President Trump’s agenda, it would help the administration’s economic positioning as companies would see refunds, consumers would worry less about higher prices, and lower interest rates would ease mortgage rates as well as boost overall economic activity.

A Brief Update on the IEEPA Court Case

What’s Happening: The Supreme Court has agreed to hear and expedite the case on President Trump’s tariff authority under the International Emergency Economic Powers Act (IEEPA). According to a document released by the Court on Tuesday, the case is set for argument during the first week of November.

Why It Matters: The Trump Administration has collected $180 billion in tariff revenue as of August and approximately 90 percent of that revenue came as a result of IEEPA tariffs, according to the Shipment’s calculations. Treasury Secretary Scott Bessent indicated that if the Supreme Court were to rule against IEEPA tariffs, the federal government would have to refund about half of the collected tariff revenue. The final Supreme Court decision will mark a historic day for U.S. trade laws and the balance of power and set a new precedent for future tariff policy from the executive branch. If the Court affirms the decisions of the lower courts and strikes down the current use of IEEPA to erect tariffs, it will eliminate the president’s fast-track route to imposing tariffs at will. Although some will certainly see that result as a blow to executive power, there are still numerous pathways available for the president to implement tariffs that hold historic precedent and tested procedures that involve public commentary. It is also possible that implementing tariffs via IEEPA will not be entirely ruled out, and only the current IEEPA tariffs that have no limitations and exceed clearcut national security rationales would be dismantled. No matter the result, a resolution of what IEEPA can and cannot do to effectuate U.S. tariff policy will inevitably provide greater certainty for markets, trade analysts, and trade partners.

See more about the IEEPA case here.

Looking Ahead: As the Shipment noted previously, it is still too early to tell what the end result will be for IEEPA. The Supreme Court could decide that revenue-raising authority lies solely with Congress, even if Congress delegates some of that authority to the president. On the other hand, the Court could uphold executive privileges if the administration is able to make a real national security case. Assuming IEEPA tariffs are struck down and this authority can no longer be used to impose tariffs at will, the most plausible scenario is that the administration relies on Section 232 national security tariffs. The administration could simply expand the scope of Section 232s through the new  inclusion process that allows tariffs to hit derivative products, which are products made, at least in part, from the targeted import. This was most recently used in mid-August with the addition of more than 400 steel and aluminum derivatives based on their metal content. A Section 232 could act as an anchor tariff with further offshoots branching off to hit derivative products, impacting hundreds of additional imports with hundreds of billions of dollars in value. This approach, combined with the occasional Section 301 tariff, could easily replace the IEEPA avenue going forward, with the only downside to the administration being a longer wait time.