Trump urgently wants Jerome Powell to cut interest rates. That won't happen this week, economists say.

The Federal Reserve is widely anticipated to hold its benchmark interest rate steady at 4.25%-4.5% following its July 30 meeting, with economists assigning a 96% probability to no change despite President Trump's persistent calls for cuts. While Trump advocates for lower rates citing international actions and current inflation levels, the Fed is expected to prioritize a solid economy, recent CPI data showing inflation at 2.7% (above its 2% target), and potential inflationary impacts from tariffs. Analysts project the earliest likely rate cut, a 25 basis point reduction, to occur at the September meeting, allowing the central bank to maintain flexibility amid economic uncertainties and political pressure.

Analysis

The Federal Reserve is overwhelmingly expected to maintain its benchmark interest rate in the 4.25% to 4.5% range at its upcoming July meeting, with economists citing a 96% probability of a hold. This stance comes despite escalating public pressure from President Trump, who is advocating for rate cuts to stimulate economic growth. The Federal Open Market Committee's (FOMC) caution is rooted in recent economic data, particularly a June Consumer Price Index reading of 2.7%, which is significantly above the central bank's 2% annual target. This inflationary pressure, potentially exacerbated by the administration's new tariffs, provides the Fed with a strong rationale to resist immediate easing. While the economy shows signs of slowing, with Q2 GDP growth forecast at 1.8% compared to 2.8% in 2024, the labor market remains solid. Internal dynamics suggest growing dissent, with at least two FOMC members favoring a cut, but the consensus view appears to be a deferral of action. Market participants are now pricing in a 63% probability of a 25 basis point cut at the September meeting, with economists forecasting further easing in 2025 and 2026 as economic conditions are expected to soften.

Key Decisions for Investors

• Investors should anticipate the Fed holding rates steady this week but must closely scrutinize Chair Powell's press conference for any shifts in forward guidance, as this will be the primary driver of market expectations for the September meeting.
• Given the high probability of a rate cut being deferred to September, fixed-income investors may consider positioning for a dovish pivot in the medium term, while equity investors should monitor for signs that persistent inflation could delay the expected easing cycle.
• The key risks to monitor are incoming inflation data and the real economic impact of tariffs, as any significant deviation from current trends could alter the Fed's timeline and challenge the consensus forecast of two rate cuts in 2025.