Source: China Fund Reporter Taylor

Hello everyone, take a look at the latest news from Federal Reserve Chairman Powell regarding interest rate cuts.

Powell: The Federal Reserve would have cut rates by now if it weren't for tariffs.

On July 1, Federal Reserve Chairman Powell stated that the Federal Reserve would likely have implemented a looser monetary policy by now if it weren't for the tariff plan introduced by Trump.

At the European Central Bank forum held in Sintra, Portugal, Powell was asked during a panel discussion: if Trump had not announced tariffs on numerous foreign trading partners earlier this year, would the Federal Reserve have already cut rates again? Powell replied, 'I think so.'

Powell added, 'In fact, when we look at the scale of tariffs, we decided to remain on hold because inflation expectations for all things related to the U.S. have risen significantly due to tariffs.'

Powell's remarks indicate that despite increasing pressure from the White House, the Federal Reserve is still taking a wait-and-see approach on interest rate policy.

Last month, the Federal Reserve again kept its key borrowing rate unchanged. Since December of last year, the rate has been in the target range of 4.25% to 4.5%.

The Federal Reserve's Federal Open Market Committee (FOMC) indicated through its so-called dot plot that there could be two rate cuts by the end of 2025. However, Powell stated at last month's press conference that the Federal Reserve 'is prepared to remain on hold.'

When asked if it would be too early to cut rates in July, Powell said, 'I really can't say right now, it will depend on the data.'

According to the CME FedWatch tool, federal funds futures traders expect a probability of over 76% that the Federal Reserve will keep rates unchanged in July.

Powell said during Tuesday's panel discussion, 'We are looking at the situation one meeting at a time. I will neither exclude any meetings nor directly incorporate them into plans. It entirely depends on how the data evolves.'

Powell stated that he expects the impact of tariffs to manifest in inflation data over the coming months, while also acknowledging that there remains considerable uncertainty. 'We are watching closely. We expect to see some higher (inflation) readings in the summer.'

However, he added that decision-makers are also prepared to respond, acknowledging that these impacts 'may be higher or lower than we expect, and could occur earlier or later.'

The Federal Reserve is caught between predictions and the latest data.

The Federal Reserve is currently facing an awkward situation: on one hand, there are its forecasts regarding inflation; on the other hand, the latest data has not shown significant pressure.

So far this year, the Federal Reserve has not cut rates—despite ongoing pressure from Trump—partly to confirm whether the price increases driven by tariffs will evolve into more persistent inflation. But so far, this increase has not been evident.

Powell said, 'We believe the most prudent approach is to remain patient, continue to observe, and see how these impacts develop.'

In June, Federal Reserve policymakers unanimously voted to keep rates unchanged again. However, the latest quarterly forecasts show that officials have differing views on the future trajectory of interest rates.

Ten officials expect at least two interest rate cuts this year, while seven expect no cuts until the end of 2025, and two expect just one cut before the end of the year.

Trump's imposition of new tariffs on dozens of U.S. trading partners, along with his fluctuating approach to specific rates and trade agreements, has created uncertainty for the economic outlook. The market generally predicts that these tariffs will increase inflationary pressures and hamper economic growth.

However, from the economic data perspective, there is currently almost no visible impact of tariffs on either prices or the job market. Trump and several senior officials in his administration have seized on this point, continuing to pressure for a quick rate cut.

Powell said, 'We have always emphasized that the timing, magnitude, and persistence of inflation is highly uncertain.'

The two Federal Reserve governors appointed by Trump, Waller and Bowman, indicated that a rate cut could happen as soon as this month's meeting. They both mentioned that recent moderate economic data is one of the reasons supporting their views.