Federal Reserve Chair Jerome Powell faced intense scrutiny after tariff-driven inflation pressures stalled expected rate cuts, sending market volatility soaring.
At a Glance
- Federal Reserve Chair Jerome Powell spoke at the Sintra central banking forum on June 29, 2025.
- The Fed’s benchmark federal funds rate stood at 4.3% as of July 1, 2025.
- Treasury futures assigned an 81% probability of no rate change at the July 29–30 meeting.
- President Trump imposed new tariffs on $50 billion of Chinese goods on June 15, 2025.
- ECB President Christine Lagarde endorsed monetary independence at the same forum.
Tariffs and Fed Deliberations
At the central banking forum in Sintra, Portugal, Powell acknowledged that “if not for” the inflationary impact of recent tariffs, the Fed would likely have reduced borrowing costs by now. He noted that headline consumer prices rose 3.2% in May year-over-year, above the central bank’s 2% target, driven largely by higher import costs following new levies.
Despite signs of cooling core inflation—up 2.4% in May—Powell stressed that tariff-related price pressures left the committee little choice but to hold the benchmark rate at 4.3% through 2025, extending a pause that began after the December 2024 meeting.
Watch a report: Fed Chair Powell Defends Wait-and-See Approach.
https://www.cnn.com/videos/business/2025/07/01/jerome-powell-tariffs.cnn
Market Reactions and Political Fallout
President Trump escalated the pressure by publicly deriding Powell on social media as a “numbskull” and delivering a handwritten letter accusing the Fed of “costing the USA a fortune” to its Washington headquarters. In response, two senior policymakers—Vice Chair Michelle Bowman and Governor Christopher Waller—broke ranks, suggesting that a quarter-point cut could be justified at the July meeting if incoming data point decisively toward receding inflation.
Financial markets swung sharply on this tug-of-war. The S&P 500 slipped 1.1% and the Nasdaq Composite fell 1.4% on July 1, while 10-year Treasury yields jumped from 3.85% to 3.95% as traders downgraded odds of easing. Meanwhile, CME Group’s FedWatch tool showed futures pricing in just a 19% chance of a rate cut on July 30, down from 35% a week earlier.
International Support and Future Outlook
Global central bankers rallied to Powell’s defense at Sintra. At a panel discussion, ECB President Christine Lagarde praised his data-driven approach and urged all policymakers to resist political interference, warning that erosion of central bank independence “threatens financial stability worldwide.” Financial firms in London and Frankfurt reported calmer trading in euro-dollar swaps after her endorsement.
Looking ahead, Powell made clear that future moves hinge on two key datapoints: the July 10 Consumer Price Index report and the July 5 nonfarm payrolls release. Economists forecast headline CPI slowing to 2.8% year-over-year and payrolls adding 225,000 jobs, a combination that could tip the scales back toward a cut in October or December. Yet with tariff talks between Washington and Beijing still in flux, analysts warn that any resurgence in trade tensions could once again delay easing.
