Powell confirms that the Fed would have cut by now were it not for tariffs

Federal Reserve Chair Jerome Powell stated that the U.S. central bank would have implemented easier monetary policy, including rate cuts, by now had it not been for President Trump's tariff plans, which materially increased inflation forecasts. Speaking at an ECB forum, Powell affirmed the Fed's current 'wait-and-see' stance, with rates held steady since December, emphasizing that future decisions remain data-dependent despite market expectations for no July cut and ongoing White House pressure. This underscores the significant impact of trade policy on monetary decisions and contributes to market uncertainty regarding the timing of future rate adjustments.

Analysis

Federal Reserve Chair Jerome Powell has explicitly linked the central bank's current restrictive monetary policy to the Trump administration's tariff plans, stating that policy would be easier if not for the inflationary impact of these trade levies. This admission reveals that geopolitical and trade policies are directly overriding traditional economic data in shaping the Fed's near-term decisions, forcing it to maintain the federal funds rate in a 4.25% to 4.5% range since December. Despite the FOMC's dot plot indicating two potential rate cuts by the end of 2025, Powell's current posture is one of extreme caution, emphasizing a "wait-and-see," data-dependent approach for upcoming meetings. This creates a disconnect between the Fed's non-committal stance and market pricing, which, according to the CME FedWatch Tool, sees a greater than 76% probability of rates remaining on hold in July. The situation is further complicated by intense political pressure from the White House and underlying uncertainty about global trade, which persists even as the S&P 500 has reached new all-time highs.

Key Decisions for Investors

• Investors should closely monitor developments in U.S. trade policy and tariff negotiations, as these have been identified as the primary impediment to a more dovish monetary policy stance.
• Given the Fed's explicit "meeting by meeting" and data-dependent approach, coupled with political pressures, expect continued uncertainty and potential volatility around key economic data releases and FOMC meetings.
• It is prudent to re-evaluate exposure to rate-sensitive assets, as any sudden de-escalation in trade tensions could trigger a rapid repricing of interest rate expectations, significantly impacting bond yields and equity sector performance.