Markets opened the week with a jolt after reports leaked that President Trump was preparing to fire Federal Reserve Chair Jerome Powell. Stocks sold off quickly, the dollar slumped, and bond yields jumped—reflecting fears that the Fed’s independence was under threat. But the selloff was short-lived: Trump later denied any imminent plans to remove Powell, and markets rebounded just as fast, highlighting how fragile confidence remains when it comes to the Fed’s political standing.
‍

Still, the episode deepened skepticism around rate cuts. Fed Governor Waller’s earlier case for a July cut lost traction as strong economic data rolled in: retail sales beat expectations, business sentiment jumped, and wage growth remained firm. Meanwhile, the University of Michigan’s inflation expectations dropped slightly—but stayed well above levels consistent with the Fed’s 2% target. As a result, traders now expect fewer than two rate cuts in 2025, down from nearly four just two months ago.

‍

CPI Comes in Soft, but Tariff Impact Grows Ahead of Fed Decision

‍

June Consumer Price Index (CPI) came in cooler than expected, with core prices up just 0.2%—marking the fifth straight month of tame core inflation. Still, signs of tariff pass-through are beginning to emerge: categories like toys, appliances, and furnishings saw their fastest price increases in years, even as car prices fell.
‍

Markets now overwhelmingly expect the Fed to hold rates steady on July 30, with odds of a September cut rising modestly.
‍

Trump responded by calling for immediate cuts: “Consumer Prices LOW. Bring down the Fed Rate, NOW!!!” But with tariffs still set to rise in August and the Fed’s preferred gauge (core PCE) due July 31, policymakers are unlikely to rush. For now, institutional credibility—not just inflation—is on the line.

‍