Powell’s Speech Looms as Fed Faces Internal Split, Tariff-Driven Inflation, and Market Tensions

Will Powell Acknowledge Growing Fed Division or Hold the Line?

Federal Reserve Chair Jerome Powell speaks today at 12:30 GMT under intense market scrutiny, as traders weigh rising internal dissent at the Fed, tariff-fueled inflation, and increasing political pressure.

With markets pricing just a 4.7% chance of a July rate cut, Powell’s tone and guidance will be dissected for any sign of pivot—especially after Governors Waller and Bowman openly called for immediate easing.

Tariffs Complicate Rate Cut Calculus as Inflation Pressures Rise

Tariff-linked inflation remains the central barrier to a rate cut. The U.S. average effective tariff rate has climbed to 22.5%, its highest since 1909. Powell previously stated the Fed would have already cut rates if not for tariff-related price pressure. June CPI surged to 2.7% year-over-year from 2.4%, while core PCE is projected to end the year between 2.6% and 2.9%, far above the Fed’s 2% target.

The key question Powell must answer is whether current inflation reflects temporary price adjustments or persistent upward pressure. Economists warn that as inventory buffers deplete in H2 2025, tariff passthrough will accelerate. Powell’s characterization of these pressures could sharply move markets, especially if he signals prolonged restraint.

Fed Governors Waller, Bowman Call for July Cut—Will Powell Push Back?

Fed leadership is unusually divided. Governor Waller recently argued that tariffs are one-off price increases, advocating for a 25 basis point cut this month.

Vice Chair Bowman echoed this sentiment, citing lagging effects on consumer prices. Powell must now choose whether to acknowledge this public split or reinforce the FOMC’s prior unified stance—rates held at 4.25%-4.50% in June.

This internal divergence creates a communications minefield. Any signal of policy debate intensity could heighten volatility, especially if traders perceive the Fed is less cohesive or reactive to internal lobbying.

Mixed Economic Data Adds Pressure on Policy Message

Powell faces a murky economic backdrop. Q1 GDP contracted 0.5%, yet the labor market remains solid with 147,000 jobs added in June and 4.1% unemployment.

However, private sector job gains slowed to just 74,000, and manufacturing remains under stress from trade uncertainty and retaliatory tariffs. Powell must reconcile strong headline numbers with weaker underlying trends, all while defending a patient policy stance.

Market Setup: Dovish Surprise Could Fuel Equities, Hit Dollar

Markets are braced for volatility. Interest-rate sensitive sectors—REITs, tech, and utilities—stand to gain on dovish language, while financials may benefit from higher-for-longer rates. A dovish tilt could weaken the dollar by 3–4%, pressuring emerging markets but lifting global risk assets.

Bond yields around 4.20% on the 10-year reflect cautious positioning. Options markets show elevated implied volatility, pricing in a wide range of outcomes from Powell’s remarks. Traders should be alert for asymmetric risk: hawkish surprises often provoke stronger market reactions than dovish ones.

Market Forecast: Volatility Expected; Watch for Subtle Hawkish Hints

Traders should expect elevated volatility across asset classes today. Powell is likely to maintain a cautious, data-dependent tone, but any subtle hawkish lean—particularly on inflation persistence—could trigger risk-off moves.

A dovish shift, while less probable, would spark a rally in growth equities and pressure the dollar. The speech marks a crucial moment for the Fed’s credibility and market expectations heading into the July FOMC.

More Information in our Economic Calendar.