Powell Pushes Back on July Cuts
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Economics Research27 Jun 2025
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US: Powell kept a door open for a rate cut in September. Powell reiterated that the Fed’s stance was a pause, not a pivot. Despite tame long-term inflation expectations, he expected the tariffs to pass through in the June and July inflation numbers. In doing so, he kept the door open for a September cut on the condition that the one-off price increase did not present an “ongoing inflation problem.” He also wanted to know where the tariff rates would settle after the 90-day pauses end in July. Fed speakers—Governor Michael Barr, Fed Presidents Raphael Bostic (Atlanta), and Neel Kashkari (Minneapolis)—also backed Powell’s call for caution on tariffs and patience on rate cuts. The Conference Board noted that tariffs remained on top of consumers’ minds and were frequently associated with concerns about their negative economic and price impacts.

However, Powell added that the Fed could cut sooner if the US jobs markets weaken more than expected. We noted that US nonfarm payrolls dropped below 100k in Jun-Aug 2024 when the Fed delivered its first and larger-than-expected 50 bps cut last September. Payrolls have been higher at 147k and 139k in Apr and May 2025 despite the rise in the four-week initial jobless claims. Nonetheless, consensus expects next week’s US monthly jobs data to show payrolls declining again to 116k in June and the unemployment rate rising to 4.3% from 4.2%.

US Conference Board’s Consumer Confidence Index declined to 93.0 in June from 98.4 in May which was clearly below consensus of 99.8. Expectations Index dropped by 4.6 points to 69 in June with more pessimistic views on business conditions, job availability, and future income prospects amid tariffs uncertainty, immigration measures, and public sector employee firing. The survey's so-called labour market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, narrowed to a four-year low of 11.1 in June from 12.7 in May.

Meanwhile, Trump stated that he has three or four people in mind to succeed Fed Chair Powell next year, adding on to his pressure on the Fed to cut rates. If Trump puts out his Fed Chair nominees early, this could undercut Powell’s credibility in steering policy before the official end of his term in May 2026. It could lead to the pricing of more dovish Fed policy settings.

After Trump’s unexpected strikes at Iranian nuclear sites over the weekend, Trump announced that Isreal and Iran have agreed to a tentative phased ceasefire to end what he called “The 12-Day War”. The ceasefire appears to be holding, at least for now.

Figure 1: US Conference Board’s Consumer Confidence Index and labour market differential

Source: Bloomberg, DBS




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