According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) rose just 0.1% in May, bringing the annual inflation rate to 2.4%. Economists had expected a monthly rise of 0.2%.
While market participants are increasingly betting on rate cuts as early as September, Subbaraman remains cautious, citing delayed effects from trade tariffs and inventory movements that haven’t yet filtered through to core inflation.
“We think that there are significant lagged effects from when the tariffs started going up, particularly in April, and when we’ll start to see it showing up on the prices of items on supermarket shelves,” Subbaraman said in an interview with CNBC-TV18.
He pointed out that many US companies front-loaded imports before the new tariffs kicked in, creating temporary buffers that are keeping inflation contained for now.
He expects that these buffers will start to unwind soon. “As we get into June, we think in July, August, those months, you’ll start to see inflation going up,” he said.
Based on Nomura’s projections, the US core personal consumption expenditure (PCE) inflation could rise above 3% by the fourth quarter, which would make it harder for the Fed to justify early rate cuts.
While parts of the market are pricing in two cuts before year-end—possibly one in September and another in October—Nomura believes the Fed will wait longer to assess the full inflationary impact of tariffs and global risks.
Subbaraman also highlighted that markets are dealing with multiple layers of uncertainty, including geopolitical tensions and fiscal concerns, which could make the Fed more cautious.
Watch the accompanying video for the full interview.
