President Donald Trump once again took aim at Federal Reserve Chair Jerome Powell, sending a handwritten note urging a sharp cut in U.S. interest rates to “1% or better,” and lamenting that the Fed has “FAILED.” The president posted the note on social media, underscoring his view that the U.S. rate should sit between Japan’s 0.5% and Denmark’s 1.75%, and chastising Powell for acting “too late” even as the unemployment rate remains low and inflation hovers above target.
Despite intense political pressure, Fed officials held the policy rate at 4.25%–4.50%, citing uncertainty over the Trump administration’s looming tariff increases and their potential to spark fresh inflation. Treasury Secretary Scott Bessent, speaking separately, laid out a conventional timeline for Powell’s eventual replacement next May, suggesting a January nomination for a successor that could ascend to the chairmanship upon Powell’s departure.
Market Overview:- President urges rate cut to 1%, contrasts U.S. with global peers;
- Fed holds steady at 4.25%–4.50% amid tariff-driven inflation concerns;
- Bessent previews orderly Fed leadership transition in 2025.
- Trump conflates policy rate with broader bond yields in social media post;
- Fed resists political calls, awaits summer data on tariff pass-through;
- Goldman economists move first cut projection to September amid softer inflation signals.
- June’s jobs report and July CPI data will shape rate-cut debate;
- Tariff deadline on July 9 adds urgency to Fed’s policy path;
- Confirmation hearings for Powell’s successor may spotlight Fed independence.
- Federal Reserve Chair Jerome Powell’s cautious approach provides clarity and stability, reassuring markets that the central bank will not rush into rate cuts without sufficient data, reducing the risk of policy mistakes.
- By holding rates steady, the Fed signals its commitment to price stability and long-term economic health, anchoring inflation expectations and supporting confidence among businesses and consumers.
- If tariffs prove to be a one-time shock and do not embed higher prices into public expectations, the Fed will have the flexibility to cut rates later in the year, potentially boosting risk assets and economic activity.
- Despite political pressure, Powell’s defense of Fed independence reinforces the credibility of U.S. monetary policy, which is positive for investor sentiment and global market stability.
- Investors will closely monitor June and July CPI data for signs of tariff-driven inflation, but any evidence of a transitory impact could open the door for rate cuts and market rallies.
- The Fed’s current policy stance allows for a measured response to evolving conditions, positioning the economy for a soft landing if inflation risks subside.
- Powell’s warning that tariffs could lead to more persistent inflation—not just a one-time price jump—raises the risk that the Fed will be forced to keep rates higher for longer, weighing on growth and market returns.
- With inflation already running above target and uncertainty about the ultimate impact of tariffs, the Fed’s reluctance to cut rates could prolong tight financial conditions and dampen economic activity.
- Political pressure from the White House and Congress adds to uncertainty about the Fed’s independence and policy trajectory, potentially undermining investor confidence and market stability.
- Investors face the risk that tariff-driven price increases will prove more enduring, forcing the Fed to delay rate cuts and increasing the likelihood of a policy mistake that could impose long-lasting costs on the economy.
- The timing and magnitude of future rate cuts remain unclear, with Fed officials split on the outlook and the possibility of no cuts at all this year, creating volatility and uncertainty for markets.
- The looming succession for Powell’s seat as Fed Chair adds another layer of uncertainty, with potential changes in leadership threatening continuity and clarity in monetary policy.
Investors largely expect the first Fed rate reduction in September, with economists at Goldman Sachs (GS) joining the chorus after noting that early signs of muted tariff impact on inflation have been stronger than anticipated.
Yet the summer data flow will be critical: June payrolls and next week’s inflation readings may either validate Trump’s impatience or reinforce the Fed’s cautious stance as it balances price stability against political winds.
