Trump wants the Fed to cut interest rates. What will Powell do?.

Is the Fed Persistent on Two Rate Cuts?

While the Federal Reserve is expected to keep interest rates steady at its meeting this week, the main question is whether the prospect of two rate cuts will be maintained in 2025. The updated dot plot chart will be a compass for investors and analysts alike. The dot plot released in March maintained expectations of two downgrades, while notable shifts in economic balances have occurred since then.

Geopolitical Shocks and the Shadow of the Dot Plot

Escalating geopolitical tension, especially in the Middle East, has clouded the predicted path of the economy. Israel's air strikes on Iran have raised concerns about oil supplies, pushing up energy costs. This development creates a new test that will test the Fed's resolve in fighting inflation. On the other hand, President Trump's harsh criticisms and calls for interest rate cuts are putting additional pressure on Powell and his team. While Trump's explicit announcement that he would not dismiss Powell shows an awareness of legal limits, public insults such as “numbskull” have also ignited debate over the Fed's independence.

Data Mixed, Market Caution Cut

Economic data support the Fed's usual “data-driven” stance. The labor market is still resilient; the unemployment rate remains at 4.2%, while wages are up about 4% year-over-year. But core inflation data — figures that run relatively high at 2.5% on PCE — are still above target. Powell may therefore not be hasty about loosening policy. In this context, the energy, consumer products and manufacturing sectors are particularly closely monitored. The delayed reflection of tariff effects on prices is causing many sectors to reconsider their pricing strategy.

Markets Are Asking If It's July or September

From the point of view of investors, this period resembles the scenario in the summer of 2019. At that time, a reduction was unlikely in July, while the Fed acted aggressively in September. Now a similar “wait and see” strategy prevails. This time, however, the picture is more complicated: Trump's policies, global uncertainties and turbulent energy prices make it difficult for markets to steer. Investors are more sensitive than ever to the Fed's verbal guidance. The slightest deviation in the dot plot can cause sudden fluctuations in the stock, bond and foreign exchange market. Market expectations are that the first cut will come in July or September, but Powell's remarks could quickly change that perception.

Scenario: How the Second Half of 2025 Shapes Up

Suppose the Fed makes the first cut in July and takes another interest rate cut in September. This scenario may reflect positively on equities in the short term, but a new tightening cycle in the second half could prompt a new tightening cycle if inflation expectations swing to the upside. In the alternative scenario, the Fed remains patient, leaves the first cut until the end of the year and tries to balance the process with three consecutive cuts in 2026. In either case, the credibility and transparency of the Fed will be decisive in determining the direction of the markets. Powell's “patient and data-driven” messages will be a guide to the point of strategy building for investors.

Expert Commentary

For investors taking forward positions, this meeting is a turning point. Powell's remarks and deviations in the dot plot can lead to aggressive pricing, especially in short-term trades. In the medium term, the persistence of inflation and the impact of geopolitical risks on markets should be monitored. In the long term, the rebalancing of bond portfolios, the transformation of high-interest sensitive sectors and global capital flows will be of strategic importance. The fragility of market perception, despite the Fed's determination, necessitates cautious optimism.

🛑 Disclaimer

This content is created by Investment Desk AI and does not constitute investment advice. You should make your decisions based on your own research and expert advisors.

stock market, usa stock news, stock news, breaking news, interest rate cut, dot plot, Fed decisions, inflation, oil prices, investor expectations, central bank strategies, Jerome Powell, Trump Fed pressure, US economy, unemployment rate, tariffs, july interest rate cut