Fed Rate Cut in July? Why the Odds Are Rising

The war is declared between the Fed and Donald Trump. The weapon of choice? The postponement of the rate cut. On one side, Jerome Powell hesitates, holding onto strategic caution. On the other, Trump charges like a bull: he wants a rapid, massive, almost spectacular cut. The Fed’s “patient waiting” is unacceptable to him. But then Christopher Waller enters the arena. And that changes everything.

Christopher Waller, the Maverick Who Stands Out

When a Fed member breaks the unanimity, amid the rate hold, it causes waves. Last Friday, Christopher Waller, one of the influential governors – and seen as Jerome Powell’s potential successor – clearly stated: “We could do this and as early as July“. And he insists:

If you’re starting to worry about the downside risk to the labor market, move now, don’t wait.

Waller is not speaking into the void. He notes that unemployment remains stable around 4.3%, GDP growth is on track, and inflation is following a downward curve. But then, why are rates still 1.25 to 1.5 points above neutral levels?

While Waller advocates economic clarity, others – like Mary Daly – prefer to wait until autumn. She calls to “gather more information” before acting. The result: the Fed appears at a crossroads.

In this monetary cacophony, everyone interprets the figures their own way. But one thing is certain: Waller challenges the tempo, and his opinion is beginning to set a precedent.

Powell, Trump’s Favorite Target on a Crusade

When Donald Trump tweets, the tremors are seismic. His latest post on Truth Social directly targets Powell:

He’s a dumb guy.

That’s it. And it’s not an isolated slip.

The former president wants the Fed to cut rates by at least two points. According to him, this would save up to $1 trillion per year. He accuses Powell of dragging down the economy for political reasons. Governor Waller, although appointed by Trump, remains stoic: “Our mandate is employment and price stability. Not refinancing the government debt.”

But Trump keeps waving the threat: “Maybe I should change my mind and fire him“. In an election year, these attacks fit into a reconquest plan. An independent Fed? On paper, yes. In reality, it’s more complicated.

Worth noting: the market has not yet priced in a July change. Futures rather indicate September. But the political pressure does not ease at all.

What if Trump forces the change with tweets more effective than a thousand FOMC meetings?

The American Economy Between Weak Signals and Alarm Signals

On the one hand, analysts like John Leer (Morning Consult) believe the economy “holds up despite uncertainty“. On the other, several indicators are flashing warnings.

• Unemployment among graduates reaches 7%, a 25-year high
• The Challenger report announces a 47% increase in layoff plans in one year
• The unemployment rate could rise to 4.8% by the end of 2025 according to Pantheon Macroeconomics
• EY-Parthenon forecasts growth barely at 0.8% in the last quarter
• Bitcoin trades at $102,466 per coin
• 34% of small businesses cannot find candidates for their vacancies

Even manufacturing indices plunge: the Philadelphia Fed index hit its lowest level since May 2020. Waller calls this “cracks in the employment wall“. For him, tariff effects will be moderate and mostly temporary. Better to act early than too late.

But not everyone shares his analysis. Michael Pearce (Oxford Economics) thinks the economy is not yet weakening enough to justify an immediate cut.

So, should the Fed anticipate or wait for the walls to crumble?

Economic signals diverge, interpretations collide, and political pressures reach new heights. One governor steps out of line, a president parodies the monetary civil war publicly. But deep down, one geopolitical factor weighs heavier than admitted: the tensions in the Middle East. The uncertainty related to these conflicts pushes the Fed to hold back. In this complex equation, a too-early move on rates could reignite inflation. The timing therefore remains suspended on far more than just a graph or a curve.