Federal Reserve to Hold Rates Steady at July Meeting, Experts Say

Federal Reserve Chair Jerome Powell may be pressured to lower interest rates, but experts and markets expect a dovish move to be months away. The Fed has a dual mandate of stable prices and maximum employment, and a solid labor market doesn't scream for rate cuts at a time when tariffs could cause inflation. Market participants expect a 25 basis point cut twice this year, with the first reduction coming in September. The odds of a cut at the next Fed meeting are less than 3%. Economists and strategists expect the Fed to hold rates steady at an increasingly complex time.

Federal Reserve Chair Jerome Powell is under increasing pressure to lower interest rates, but experts and markets expect a dovish move to be months away. The Fed's dual mandate of stable prices and maximum employment is being closely scrutinized, with a solid labor market not necessarily necessitating rate cuts at a time when tariffs could cause inflation.

Market participants expect a 25 basis point cut twice this year, with the first reduction coming in September. The odds of a cut at the next Fed meeting are less than 3%, according to the CME FedWatch tool [1]. Economists and strategists anticipate the Fed to hold rates steady at an increasingly complex time.

President Donald Trump has repeatedly criticized the Fed's handling of monetary policy, urging Powell and the central bank to lower interest rates to spur economic growth and potentially lower the cost of servicing the national debt. Trump's latest comments came after the Bureau of Labor Statistics released the latest inflation data, with the consumer price index (CPI) showing prices increased in June from the prior month [1].

Federal Reserve Chairman Powell has stated that the US economy is strong and there is no rush to cut interest rates. He will carefully monitor inflation indicators and assess the impact of Trump's policies on the economy. JPMorgan's Karen Ward expects the Fed to pause interest rate cuts after December to evaluate the impact of Trump's policies [2].

The Federal Reserve significantly cut rates by 50 basis points at its September meeting and then lowered the benchmark rate by an additional 25 basis points last week. The market currently expects a probability of about 58% for another 25 basis point cut next month [2].

Powell's latest speech impacted rate cut expectations, stating that the economy has not conveyed any signals indicating a need to rush to lower interest rates. The better economic conditions allow the Fed to be cautious in its decision-making [2].

The Federal Reserve faces a delicate balance between maintaining economic growth and managing inflation. While tariffs may cause temporary price surges, the Fed's practice is to "look through" such price-level effects as long as inflation expectations are anchored. The labor market's performance and economic growth data suggest that the policy rate should be around neutral, not restrictive [3].

The Fed's decision to cut rates will be influenced by various factors, including the impact of tariffs, economic growth, and inflation. The market's expectations and the Fed's dual mandate will play a significant role in determining the next steps in monetary policy.

References:
[1] https://www.foxbusiness.com/economy/trump-says-federal-reserve-should-lower-interest-rates-3-points
[2] https://www.moomoo.com/news/post/75106445/record-tr4cking-news-tesla-earnings-preview-what-can-offset-declining-sales
[3] https://www.cbc.ca/player/play/video/9.6837580