That’s if the expected tariff inflation is less than forecast and the labor market doesn’t weaken.
Fed Chair Jerome Powell is testifying on Capitol Hill this week, days after the June meeting kept the Federal Funds Rate at 4.25% to $4.50%.
Powell repeated his assertion about tariff inflation’s potential impact on the supply chain during testimony on June 24 before the House Committee on Financial Services.
But he also sounded a tad, well, different, as to when rates might fall again.
Fed officials offer mixed messages on interest rate cuts
At the time of the June meeting, Powell said the post-pandemic economy was resilient and stable, but the risk of tariff inflation on prices on the nation’s supply chain prompted a “wait-and-see” prudent approach to holding rates steady.
This disappointed many Americans, including President Donald Trump, who has been slamming Powell with a vast variety of vile vindictiveness for keeping interest rates steady for all of 2025 thus far.
On the fiscal policy side of the U.S. economy, market experts are watching President Trump’s trade wars, the tax bill, immigration policies, and the Middle East conflict.
So are monetary policy makers. However, the Federal Reserve’s dual mandate rules their actions.
The Fed’s dual mandate is to prudently monitor monetary policy to maintain inflation (at about 2%) and unemployment relatively low to keep the recession-free economy and its GDP humming along.
The Federal Open Meeting Committee controls the Federal Funds Rate, which banks charge each other overnight to borrow money.
The funds rate is tied to the cost of borrowing money for consumers, investors and businesses. It’s everything from your credit-card bill or car loan to 10-year Treasury bonds.
Fed watchers say tariff inflation data over the next 30-60 days will indicate whether the Fed will approve two, or maybe one, rate cuts of 0.25% each this year during late 2025.
Trump, en route to the NATO meetings, re-hashed his displeasure over the steady interest rates, claiming they are costing the country up to $1 trillion.
Both Fed and market watchers had forecast that the next probable rate cut could appear at the central bank’s September FOMC meeting.
Then in the last few days, Fed Governors Christopher Waller and Michelle Bowman, both Trump appointees, said – with inflation healthy and as long as employment is stable – a funds rate cut could come as early as the Fed’s July meeting.
Stephen (Steven) Mnuchin, Treasury Secretary in the first Trump Administration, told CNBC that he expected the Fed to cut rates by 0.75% to 1 % over the next year. This is inline with most market expectations and the Fed's own "dot plot" chart through the end of 2026.
Federal Reserve Bank of Atlanta President Raphael Bostic disagreed. He told Reuters “we have some space and time’’ to learn from the tariff inflation as it ripples through the United States. He also said he expects a single 0.25% rate cut later in 2025.
The widely watched CME FedWatch tool puts the likelihood of a July cut in the Federal Funds Rate at 18.8% June 24, down from 22.7% June 23.
Powell's message on interest rate cuts
At the time of the June meeting, Powell said the post-pandemic economy was resilient and stable, but the risk of tariff inflation on prices on the nation’s supply chain prompted a “wait-and-see” approach to holding rates steady.
Trump’s proposed tariffs – essentially an external sales tax to U.S. trading partners that we pay one way or another – face a July 9 deadline.
In prepared remarks to the House panel, Powell said despite elevated uncertainty, the economy is in a solid position and there was no hurry for rate cuts.
“The unemployment rate remains low, and the labor market is at or near maximum employment. Inflation has come down a great deal but has been running somewhat above our 2 percent longer-run objective,” according to the testimony.
Then the House panel peppered the Fed chair with questions ranging from impacts on pecan growers in Georgia to the housing industry across America to worried longshore workers.
The consensus? Lower interest rates the sooner the better for consumers and businesses back home in their districts as well as all Americans.
Powell remained firm: The Federal Reserve “is well-positioned to learn more about price increases before changing interest rates.”
He repeatedly described the tariff inflation variable as a learning experience for the Fed.
And then indicated, perhaps in a less hawkish manner, that interest rate cuts could come once inflation reports for “June and July” show what price increases and tariff pains are doing to “American families.”
“I think that if it turns out that inflation pressures do remain contained, then we will get to a place where we cut rates sooner rather than later,’’ he said in response to a question from U.S. Rep. Mike Lawler (R-NY).
TheStreet Pro veteran trader Peter Tchir, in comments prior to Powell's testimony, wrote the "Fed is too worried about inflation and not worried enough about jobs.
"The jobs data (as we’ve highlighted in recent reports), except the headline establishment survey number, has been mediocre to weak and heading in the wrong direction.
"At the status quo on tariffs, there will be some inflationary pressure, but this bleeds in over time and won’t be the “full” 10%. And any economic slowdown will also offset some pressures as spending slows."
Powell presents the bi-annual Monetary Policy Report to Congress to the GOP-led Senate Banking Committee on June 25.
Trump in recent months has threatened to install a “shadow” chair until Powell resigns or leaves in May 2026. In addition to musings that perhaps Trump might appoint himself (which he legally can’t), Treasury Secretary Scott Bessent is also a recent frontrunner to join the Fed board.
Powell has said he has no intention to resign early, which he repeated during the June 24 testimony when quizzed by multiple House members about Trump’s barbs and threats.