Inflation report suggests damage from Trump's tariffs isn't guaranteed

A run of better-than-expected indicators — including Wednesday's inflation report — so far point to a strikingly resilient economy.Why it matters: Those waiting for signs of a tariff-wrecked economy will have to keep waiting. Economists anticipate President Trump's policies, particularly those related to trade, will weaken growth and raise consumer prices. But how, when, or even if looks more uncertain than ever.State of play: Consider the economic news flow in recent days.The May Consumer Price Index came in cooler than expected, extending a monthslong streak of easing price pressures.U.S.-China trade tensions appear to have simmered down, with Trump touting a deal that will unlock critical minerals for U.S. manufacturers. Treasury Secretary Scott Bessent told lawmakers Wednesday that U.S. tax receipts in May came in almost 15% above the previous year, despite cuts at the Internal Revenue Service.Stock prices are approaching record levels, less than 2% below the all-time high reached in February.The intrigue: The Wall Street consensus is that a tariff shock will weaken the economy and put upward pressure on inflation. Economists are just waiting for something to happen, much like the two characters in the play "Waiting for Godot."The huge question is whether the anticipated slowdown — Godot — shows up.What to watch: Many businesses are running down supplies brought in from overseas before tariffs took effect, shielding consumers from price hikes. Once that inventory dries up, retailers will have to face tough choices about how much to pass along to customers.Those front-loading effects have created an economic mirage of sorts, resulting in a demand surge that isn't expected to stick. Last week's employment report signaled some underlying weakness in the job market, including a surge of workers leaving the labor force. It's too soon to tell whether the exodus was a one-off.Yes, but: That doesn't mean there aren't warning signs out there.A bond market sell-off in recent weeks signaled a reversal of norms that prevailed in the 2010s: investors demanding more compensation to hold longer-term debt — a phenomenon partly ignited by higher deficits signaled by Trump's signature tax legislation.Interest rates are below peak levels seen at the height of the inflation shock, but they're still high enough to be considered restrictive on economic activity by many Fed officials. It's unclear how that extended weight will ripple through the economy.What they're saying: "Tariff-driven price increases may not feed through to the CPI data for a few more months yet, so it is far too premature to assume that the price shock will not materialize," Seema Shah, chief global strategist at Principal Asset Management, wrote in a note.The bottom line: The economy has somewhat painlessly adjusted to huge shocks in recent years, defying naysayers and recession fears.Disruptive Trump policies are the next big test — and so far, so good.

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