Federal Reserve Chair Jerome Powell may be under increasing pressure from the White House to lower interest rates later this month, but both markets and experts say a dovish move from the central bank is likely months away.
For one thing, the Fed chief is one of 12 voting members of the Federal Open Market Committee, which controls the short-term federal funds rate. Powell can’t make monetary policy unilaterally.
Furthermore, the Fed remains attuned to any potential inflationary impact from tariffs.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
Then there’s the fact that the Fed has a dual mandate. In addition to stable prices, it is supposed to support maximum employment. A solid labor market doesn’t scream out for rate cuts at a time when tariffs could cause inflation to tick up in the months ahead.
To recap: The FOMC has held the federal funds target rate steady at 4.25% to 4.50% since its December meeting. It left rates unchanged in June, citing sticky inflation, tariff effects and, as always, the need for more data.
At this point in time, market participants expect the Fed to cut short-term rates by 25 basis points (a quarter of a percentage point) twice this year, with the first reduction coming no sooner than September.
Indeed, as of July 16, interest rate traders assigned a 56% probability to a quarter-point cut at the September meeting, according to CME Group’s FedWatch. That’s down from 66% a week ago.
Meanwhile, the odds of a cut coming at the next Fed meeting stand at less than 3%. Put another way, the market gives a 97% chance to the Fed standing pat when it meets in late July.
With the Fed set to hold rates steady at an increasingly complex time, we turned to economists, strategists and other experts for their thoughts on monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.
Fed rate cuts: what the experts say
(Image credit: Getty Images)
“The Fed is set to hold rates steady at their decision this month; the unemployment rate edged lower in June, which they will see as evidence that they can afford to wait to see how tariffs and tax cuts play out before making rate decisions in reaction to them. However, if June’s inflation trends hold, the Fed will likely be able to cut interest rates later in 2025.” – Bill Adams, chief economist for Comerica Bank
“The June CPI finally showed a clear impact of tariffs on U.S. inflation. Our economists now track core PCE for June at a notable acceleration from the prior three months. This CPI print helped push the market pricing for the September Fed rate cut probability from 93% on June 30th to almost a coin-toss on July 15.” – Yuri Seliger, credit strategist at Bank of America Securities
“Any potential breakout in inflation is a near-term risk to equity markets. One rising inflation report is too soon to declare a breakout in inflation, but it is something that we are paying close attention to. We continue to believe that the Fed is going to be patient with any potential rate cuts, as inflation is still above forecast and the labor market remains strong. The uptick in inflation is a step further away from a rate cut. This data can change quickly from month to month, but we are not expecting a Fed rate cut by the September meeting.” – Larry Tentarelli, chief technical strategist for Blue Chip Daily Trend Report
“U.S. CPI inflation picked up to 2.7% year-over-year in June from 2.4% in the prior month. Core inflation increased a tenth to 2.9%. The figures suggest firms are starting to pass on some tariff-related costs to consumers. Recall, Chair Powell noted that he expects ‘to see over the summer some higher reading.’ The Fed will wait on the sidelines for the July and August CPI reports to better assess the tariff impact on consumer prices. We continue to expect the Fed to cut in September, followed by a series of quarterly moves through 2026.” – Priscilla Thiagamoorthy, senior economist at BMO Economics
“The Federal Reserve likely will hold off from a policy rate cut until its September meeting at the earliest, given the Committee’s stated desire to wait and see what the near-term tariff transmission may be on inflation. Still, with inflation showing little sign of tariff troubles, so far, coupled with some softening in labor conditions, we think that there is little reason for the Fed not to reengage with rate-cutting later this year.” – Rick Rieder, BlackRock’s chief investment officer of global fixed income and head of the BlackRock global allocation investment team
“Inflation pressure will likely remain acute for the rest of the summer. Tariffs have not materially impacted inflation metrics yet so we should expect some further pressure in the coming months. After a rise in the coming months, I expect December CPI will go back down to 2.7% and the Fed’s preferred metric, the PCE deflator, approaching 2.6%. Although the President has called for rate cuts, the Fed will likely stand pat until inflation pressures abate.” – Jeffrey Roach, chief economist for LPL Financial
“If it’s true that inflation is staying in check, then the Fed can go ahead and cut interest rates – potentially as early as September – but if subsequent inflation reports show a different story, then the Fed is going to have to stay on hold even longer.” – Chris Zaccarelli, chief investment officer for Northlight Asset Management
“Inflation’s not going quietly. June’s 2.7% CPI reading tells us the road back to 2% won’t be smooth and gives the Fed reason to pause before cutting rates. Markets expecting an aggressive pivot may be disappointed.” – Gina Bolvin, president of Bolvin Wealth Management Group