Federal Reserve Chair Jerome Powell’s recent comments have sparked discussions about how trade deal progress might influence the timing of a potential July rate cut. The speculation around Powell and rate cuts tied to trade deals comes right now as the Trump administration faces a critical July 9 deadline to finalize dozens of bilateral agreements or, well, see sweeping tariffs resume across major trading partners.
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Fed Signals, Tariff Impact, July FOMC Expectations And Rate Cut Odds
Powell Links Trade Deal Progress to Rate Policy
During his congressional testimony this week, Powell emphasized the Federal Reserve’s cautious approach regarding any potential July rate cut from the Federal Reserve. The central bank chair suggested that successful trade negotiations could actually reduce the uncertainty that has been keeping monetary policy on hold.
Powell stated:
“For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”
The US economy and interest rates trajectory depends heavily on how these trade tensions resolve, and it seems like successful trade agreements could open the door for the Fed to consider policy adjustments sooner rather than later.
Trump Administration Races Against Tariff Deadline
With only the UK and, well, China agreements completed so far, the administration is struggling to finalize the remaining deals before July 9. The upcoming FOMC meeting in July 2025 will likely reflect the impact of these ongoing negotiations on monetary policy decisions.
Commerce Secretary Howard Lutnick had this to say:
“There are so many coming. You’re going to see deal after deal, they’re going to start coming next week and the week after and the week after. We’ve got them in the hopper.”
At the time of writing, trade experts remain skeptical that Trump could negotiate such a large number of trade deals in such a short timeframe.
Inflation Concerns Drive Fed Caution
The impact of Trump’s tariffs on inflation weighs heavily on the Federal Reserve’s July rate cut considerations, with Powell warning that summer data will reveal the true price effects. The path for US economy interest rates hinges on whether tariff-driven inflation proves temporary or, also, more persistent than expected.
Powell stated:
“We do expect to show up — tariff inflation to show up more. But I want to be honest, we really don’t know how much of that’s going to be passed through to the consumers.”
He also said:
“If it turns out that inflation pressures do remain contained, then we will get to a place where we cut sooner rather than later. But I wouldn’t want to point to a particular meeting. I don’t think we need to be in any rush, because the economy is still strong.”
Market Expectations Shift on Trade Progress
The July 2025 FOMC meeting odds currently show a 77% probability of no rate change, though two Fed governors support earlier cuts if inflation stays contained. The connection between Powell’s stance on rate cuts and trade deal progress becomes clearer as negotiations progress toward the July deadline.
Right now, financial markets have been recalibrating their expectations based on how these trade discussions unfold, and the outcome will likely determine whether the Fed moves forward with rate cuts this summer.
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The monitoring of Trump’s tariffs and their inflation impact continues as Powell stressed that the Fed’s role remains focused on its dual mandate rather than, well, trade policy advocacy.