US Fed independence under threat, say economists, but no one expects a July rate cut- Reuters poll

A Reuters poll reveals that over 70% of economists are concerned about the U.S. Federal Reserve's independence due to mounting political interference, including President Trump's attacks on Chair Powell and divergent views from some governors. Despite these significant concerns, all 105 economists surveyed unanimously expect the Fed to hold interest rates steady at its upcoming July meeting. A slight majority (53%) anticipate a rate cut in September, though the broader outlook for further reductions this year remains mixed, with inflation projected to stay above the Fed's 2% target through at least 2027 amid tariff and spending pressures.

Analysis

A Reuters poll of economists highlights a significant and growing concern over the U.S. Federal Reserve's political independence, with over 70% of respondents worried about mounting interference. This anxiety is fueled by President Trump's direct criticism of Chair Powell and, more notably, a recent divergence in views from FOMC members, with Governors Waller and Bowman advocating for a rate cut as soon as July. Despite this internal and external pressure, a unanimous consensus among 105 economists indicates the Fed will hold its key interest rate at 4.25%-4.50% during its July meeting, suggesting a state of near-term policy paralysis. The central bank faces conflicting economic signals: inflation is showing signs of tariff-related increases and is forecast to remain above the 2% target through 2027, while economic growth is slowing sharply, with a 0.5% contraction last quarter and a full-year forecast of just 1.5%. The path forward remains highly uncertain; while a slight majority (53%) anticipates a rate cut in September, a clear consensus for the rest of the year is absent, with upcoming trade tariff deadlines and the inflationary impact of a new $3.4 trillion spending bill complicating the outlook.

Key Decisions for Investors

• Given the unanimous expectation of a rate hold, focus should be on the Fed's forward guidance in its July statement, particularly any shifts in language regarding the dual risks of slowing growth and persistent inflation.
• Investors should monitor for any further public dissension from FOMC members, as the divergence of Governors Waller and Bowman introduces a political risk premium to future monetary policy that is not yet fully priced by markets.
• Maintain cautious positioning ahead of the August 1 tariff deadline, as the Fed's stated intention to wait for clarity on trade policy suggests heightened market sensitivity to geopolitical news until the September meeting.