🏦 Powell: "Trump’s Tariffs Delayed Rate Cuts" — What It Means for the U.S. Economy

🏦 Powell: "Trump’s Tariffs Delayed Rate Cuts" — What It Means for the U.S. Economy

July 3, 2025 | Economy & Policy by LEE

At a recent forum hosted by the European Central Bank in Portugal, Federal Reserve Chair Jerome Powell made headlines when he directly linked the Fed’s decision to delay interest rate cuts to tariffs imposed under former President Donald Trump. His comments have sparked debate across Wall Street and Washington, raising the question: Are politics now shaping monetary policy?

📉 Why Has the Fed Delayed Rate Cuts?

Powell stated, “We went on hold when we saw the size of the tariffs... essentially all inflation forecasts went up materially.”

In other words, the newly imposed tariffs have intensified inflationary pressure, making it difficult for the Fed to confidently begin rate reductions. The risk: cutting rates too soon could reignite inflation just as it was stabilizing

🧭 How’s the Economy Holding Up?

Consumer Price Index (CPI) remains slightly above the Fed’s 2% target, suggesting that inflation is moderating but still sticky.

Unemployment rate hovers around 4.2%–4.3%, indicating a resilient labor market.

So, while the economy isn’t overheating, tariffs are contributing to persistent price uncertainty.

⏳ When Will Rate Cuts Happen?

Powell said the Fed would assess “meeting by meeting,” staying flexible. He emphasized:

> “I wouldn’t take any meeting off the table or put it directly on the table.”

Currently, markets are pricing in only a 25% chance of a rate cut in July, but expectations rise significantly for September or later.

⚖️ Political Reactions: Powell vs. Trump

Former President Trump blasted Powell on social media, labeling him “Jerome ‘Too Late’ Powell,” accusing him of failing the economy.

Powell pushed back, defending the Fed’s independence and data-driven approach.

The friction highlights the ongoing tension between the central bank and political leaders in an election year.

📊 How Are Markets Responding?

The U.S. dollar remains under pressure due to the combined weight of tariff uncertainty, debt fears, and lower rate expectations.

Treasury yields have been volatile, with signs of a rising term premium.

U.S. stock markets have remained relatively steady, signaling investor confidence in long-term fundamentals—for now.

🧩 Summary Table

Key Point Summary

Tariff Impact Trump’s tariffs raised inflation risks → Fed paused rate cuts

Rate Cut Outlook July still uncertain; September or later more likely

Powell’s Stance Emphasizing data-based decisions; rejecting political pressure

Market Response Dollar weak, bond market volatile, stocks stable

🔍 What Comes Next?

All eyes are now on the upcoming June CPI/PCE inflation data and employment reports. These indicators will likely determine whether a rate cut finally arrives in Q3.

Additionally, changes in U.S. trade or tariff policy could force the Fed to rethink its inflation models and guidance.

💬 Your Thoughts?

Do you believe the Fed is making the right call by holding off on rate cuts?

Or is Powell being overly cautious in the face of political pressure and global uncertainty?

Let us know your thoughts in the comments below!

✒️ Written by: LEE

📅 July 3, 2025

📌 Sources: Reuters, Politico, CBS News, Business Insider, The Guardian