Powell Faces Political Pressure as Markets Eye Fed Signals on Rates and Inflation

Ongoing Tariff Uncertainty and Political Pressure Set the Stage

Federal Reserve Chair Jerome Powell is set to address the House Financial Services Committee today in what markets anticipate will be a closely scrutinized appearance.

With persistent political pressure from the White House for aggressive rate cuts and renewed uncertainty tied to tariffs and geopolitical events, traders are watching for any shift in the Fed’s policy tone.

White House Push Intensifies Rate Cut Demands

President Trump and his administration have escalated calls for immediate and sizable interest rate cuts—suggesting reductions of up to two percentage points. This effort includes aggressive rhetoric from political appointees like Bill Pulte, who accused Powell of political bias and urged his resignation.

While these attacks are largely political, they risk influencing broader market sentiment and stoking concerns over the Fed’s independence. Lawmakers from both parties are expected to confront Powell on these issues, raising the stakes for today’s hearing.

Fed Split Grows Over Rate Cut Timing

The internal debate within the Federal Open Market Committee is now more visible, with Governors Michelle Bowman and Christopher Waller—both Trump appointees—voicing support for potential easing as early as July.

This contradicts Powell’s recent messaging of patience, suggesting increasing internal discord. Allianz’s Mohamed El-Erian noted this division signals political influence may be seeping into FOMC deliberations, a scenario that could unsettle fixed income and currency markets.

Tariff-Driven Inflation Still Central to Fed’s Dilemma

Tariffs remain a dominant theme in Fed policymaking. Powell has warned that rising import costs could temporarily, or even persistently, elevate inflation, potentially putting the Fed’s dual mandate in conflict.

The key unknown is the duration and intensity of these price pressures. Without clarity, Powell may remain cautious, resisting calls for aggressive cuts even as headline inflation remains elevated.

Markets Anticipate September Cut but Remain Cautious

FedWatch data shows markets pricing in a 23% chance of a rate cut in July and 82% by September. However, the Fed’s latest projections suggest only modest easing—around 125 basis points—well below the administration’s demands. Historical experience warns that large cuts could backfire, boosting bond yields and inflation expectations.

Outlook: Cautious but Market-Sensitive Fed Messaging Expected

Given the internal Fed divisions, political interference, and economic headwinds, Powell is likely to defend a cautious stance emphasizing data dependence.

While a July cut remains unlikely without further deterioration in data, Powell may signal increased readiness to act if inflation moderates or growth weakens further.

Traders should watch for any hint of evolving consensus on the FOMC—especially regarding September policy moves.

More Information in our Economic Calendar.