'If it weren't for the new round of tariffs, we might have cut rates one or two times'—Powell plainly stated in a congressional hearing, pointing the finger at the Trump administration's trade policy for the Federal Reserve's inaction. This statement, described by public opinion as 'Powell's confrontation with the White House,' not only reveals the deep-seated contradictions between inflation and political pressure but also signals that September may become a key inflection point for policy shift.
1. Policy Stance: The Art of Waiting and Conditions for Rate Cuts
1. Three Pillars of Watchful Strategy
Data Dependency Principle: Powell repeatedly emphasized the need to observe June inflation data (released on July 15) and changes in the labor market before the July meeting, refusing to commit to any action at a specific time.
Tariff Transmission Assessment: The speed of cost pass-through for enterprises is a core variable. If tariffs only cause a 'one-time price increase' (such as short-term fluctuations after inventory digestion), the probability of a rate cut in September will increase sharply; if it leads to 'persistent inflation' (such as supply chain restructuring pushing up long-term costs), interest rates may remain until the end of the year.
Dual Mission Balancing Act: Currently prioritizing anchoring inflation expectations, but clearly stating 'if the unemployment rate deteriorates significantly, it will trigger a rate cut,' leaving room for policy flexibility.
2. Discrepancy in Interest Rate Path: July is Hopeless, September Becomes the Focus
Internal Camp Divisions:
Doves (Waller, Bowman): Advocate for a rate cut in July, believing that tariffs have limited impact on prices, delaying action may exacerbate unemployment risks.
Hawks (Barkin et al.): Insist on holding steady until inflation is met, wary of overheating demand amplifying tariff transmission.
Market Pricing Verification: CME FedWatch shows that the probability of a rate cut in July is only 16.5%-18.6%, while the probability in September soars to 66%-87%, reflecting market consensus on the 'data observation period.'
2. Economic Diagnosis: Dual Cracks Beneath the Resilient Surface
1. Inflation: The Risk of 'Secondary Upsurge' Under the Shadow of Tariffs
Current Situation: Core PCE inflation rate at 2.6% (May data), still above the 2% target. Short-term inflation expectations are driven by tariffs, but long-term expectations remain anchored.
Transmission Mechanism Controversy:
White House Position: Tariff costs borne by trading partners, US consumers are unaffected;
Federal Reserve Empirical Evidence: Companies have reported supply chain disruptions (such as shortages of auto parts), and cost pressures will eventually be transmitted to the retail end. Powell warned, 'Some tariff costs will be borne by the public.'
2. Growth: Resilience of Domestic Demand and Collapse of Confidence
GDP Fog: First quarter GDP declined due to companies 'rushing to import,' but private domestic demand (PDFP) grew by 2.5%, revealing true consumption resilience.
Confidence Crisis: Corporate CEOs generally worry about policy uncertainty, especially as manufacturing faces 'supply chain restructuring pain lasting several years,' which may suppress investment.
3. Employment: The 'Time Bomb' of Youth Unemployment
Surface Prosperity: Unemployment rate at 4.2%, wage growth higher than inflation, in line with 'maximum employment.'
Hidden Risks: Powell rarely mentioned the high youth unemployment rate; if combined with tariff shocks to corporate hiring, it could trigger structural unemployment deterioration, becoming a key factor for rate cuts.
3. Political Game: The Tug-of-War Between Independence and White House Pressure
1. Trump's 'Rate Cut Sniper'
Openly criticize Powell as 'stupid,' demanding an immediate 3 percentage point rate cut, even calling on Congress to 'punish' the Federal Reserve.
Political Logic: Economic stimulus needed before the election year; rate cuts can relieve fiscal expansion pressure and boost asset prices.
2. The Federal Reserve's 'Institutional Counterattack'
Legal Shield: Powell emphasizes that 'the Federal Reserve's independence is granted by congressional legislation, and the chairman's term is protected by law,' indirectly responding to Trump's 'dismissal threats.'
Mission Statement: 'Price stability is the prerequisite for sustained strong employment,' elevating the policy stance to a national economic security level.
4. Market Impact: Asset Price Reconstruction and September Layout
1. Short-term Volatility Logic
Strong Dollar: Delayed expectations for rate cuts push DXY close to 98.0, non-dollar currencies under pressure;
Gold Pullback: Safe-haven properties give way to interest rate expectations, with gold prices dropping below $3310/ounce;
US Stock Resilience: Although it fell before the hearing, it ultimately rose over 1%, reflecting market recognition of the 'flexible rate cut' path.
2. Mid-term Trading Main Line
September Bets: If inflation data for July-August is mild (especially if tariff transmission is weaker than expected), interest rate-sensitive assets (tech stocks, US Treasuries) will welcome a rebound window;
Stagflation Hedge: Energy and industrial metals may benefit from supply contraction triggered by tariffs, but caution is needed regarding the risk of demand collapse.
Core Conclusion: A Race Against Time
Powell's testimony is essentially a policy declaration of 'retreat for progress':
'Hawkish Posture' Defends Anti-Inflation Credibility → 'Dovish Exit' Reserves Economic Rescue Channel
Three Observation Dimensions for the Next 60 Days:
Inflation Transmission Speed: Whether companies' pricing strategies in the third quarter are aggressive;
Youth Employment Data: Will the unemployment rate for recent graduates breach the threshold;
White House Game Escalation: Will Trump use executive means to exert pressure?
If inflation does not spiral out of control before August, a rate cut in September will become the 'olive branch' the Federal Reserve extends to the market—both alleviating economic pressure and signaling its decision-making will be independent of politics.