Fed Chair Jerome Powell effectively told President Trump on Tuesday that he’s his own worst enemy in his crusade for rate cuts.
He was speaking specifically about the tariffs Trump has announced and implemented, blaming them for the lack of rate-cut activity.
“We went on hold when we saw the size of the tariffs, and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs,” Powell said at a European Central Bank panel.
Keeping inflation in check is ultimately what the Fed is focused on when deciding whether to adjust interest rates. And while recent data has been fairly encouraging, the central bank remains on hold until the impacts of tariffs on the economy become clearer. In this case, uncertainty is the enemy.
When asked if July was too soon to start cutting rates, Powell didn’t offer a clear answer, instead reaffirming his wait-and-see position. Markets are currently pricing in just a 19% probability of a cut at the July 30 meeting, according to the CME FedWatch tool.
“It’s going to depend on the data. We are going meeting by meeting,” Powell said. “I wouldn’t take any meeting off the table or put it directly on the table.”
The Fed chair’s inaction on cutting rates has drawn the ire of Trump, and Powell’s latest comments will no doubt add more fuel to the running feud.
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Trump has suggested firing Powell, and yesterday the president sending Powell a handwritten note demanding rate cuts. Trump has also reportedly considered appointing Powell’s successor months in advance, effectively undermining the Fed Chair’s authority.
However, amid the Fed’s wait-and-see messaging, Powell did offer a bit of clarity, saying that the majority of FOMC participants felt that it would be appropriate to begin cutting rates at some point during the remaining four Fed meetings this year.
Markets are pricing in around two rate cuts for the rest of the year. Some strategists, such as Bank of America’s Senior US Economist Aditya Bhave, are predicting no rate cuts at all.
