Powell’s 'No Rate Cut Likely' Brings Trump Ire, Sets Up Potential Showdown
Let's examine what the Fed Chair said Wednesday, where all this may be headed, and take a look at U.S.-Japan tariffs negotiations.
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In what should be a surprise to almost no one, President Trump is pushing back hard on Fed Chair Powell’s "no rate cut likely" comments. During his prepared remarks Wednesday Powell said:
"...the new Administration is in the process of implementing substantial policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. Those policies are still evolving, and their effects on the economy remain highly uncertain. As we learn more, we will continue to update our assessment. The level of the tariff increases announced so far is significantly larger than anticipated. The same is likely to be true of the economic effects, which will include higher inflation and slower growth."
But it was what the Fed Chair said shortly thereafter that caught the market’s attention:
"We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension. If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close."
The bottom line is there is likely no “good news” rate cut coming anytime soon, and at least for now, a “bad news” rate cut doesn’t appear to be on the Fed’s radar screen either. Knowing that will have us pay that much more attention to next week’s Flash April PMI data from S&P Global.
Powell’s comments also set up a potential showdown with Trump over rate cuts, something we flagged several weeks back. With Trump’s closing remark in his social media post that “Powell’s termination cannot come fast enough!” we continue to see that on the horizon.
While Trump may not like the Fed’s independence, Treasury Secretary Scott Bessent's comment that Fed independence in deciding on monetary policy was a “jewel box that has got to be preserved” suggests Powell is likely to serve out the remainder of his term despite Trump’s bluster.
Trump and Japan: Positive Headlines, but No Real Developments Just Yet
On the tariff and trade front, President Trump is also touting “big progress” following Japan's Trade Representative Akazawa meeting with U.S. officials Wednesday, including Trump himself. Given the meeting spanned a total of just over two hours, we’re not surprised it didn’t result in an immediate halt to the tariffs, but preparations are underway for a second round of talks to take place later this month.
Later Thursday, Italy's Prime Minister Meloni will meet with Trump to discuss trade, and we expect a similar outcome — favorable comments, but no major developments just yet.
We continue to see the inking of trade deals being a potential positive catalyst for the market, something we discussed with Peter Tchir on TheStreet Stocks & Markets Podcast this week. If you haven’t listened yet, we’d suggest taking the time to do so.
