Just last week, President Trump tweeted that he would like interest rates to be lower. This represents a welcome change in his focus from overseas military conflicts to urgent domestic economic concerns. U.S. budget process for 2026 is already setting up to cement those tax cuts. These 4 changes would together make a very big positive difference in terms of supporting economic growth and consumer spending. Federal Reserve Chairman Jerome Powell has repeatedly stated that we must watch closely how tariffs are affecting inflation. He thinks this sort of watchful waiting is necessary before making any fundamental move to a new monetary policy stance.
Given the uncertain GDP growth rate, President Trump’s craven desire to further lower interest rates is smart politics since it would goosed economic activity. The U.S. GDP growth has slowed considerably in the first quarter of this year. It bounced back in the second quarter, keeping a positive year-to-date trend overall. Consumer confidence took a major step back in June, adding some confusion to the narrative of a strengthening economy.
That backdrop is not at all helped by the continued spread of bad inflation data out of Europe. The first June inflation figures for Spain and France exceeded expectations, indicating potential challenges for the European economy. First, the U.S. is still reporting a much more positive PMI than our European counterparts. This points to the idea that, while growth has obviously slowed down, it’s still very much strong and resilient.
President Trump is reportedly thinking about dumping Jerome Powell as head of the Federal Reserve. With Powell’s term on the Fed ending next year, this unexpected decision has further heightened what is becoming a tenuous economic landscape. This speculation adds a layer of additional uncertainty. Financial markets are transfixed by uncertainty over the future path of U.S. monetary policy.
While on the international stage, a recent warming of tensions between Israel and Iran has deescalated, with the truce holding thus far. Geopolitical stability at home and abroad has helped to stabilize the oil market significantly. Prices are down an estimated 15% from last week’s high. Because the Strait of Hormuz has stayed open, it has eased concerns of interruptions to world energy supplies.
Rightly so, market analysts have predicted a U.S. export rebound, as these global conditions strengthen. Meanwhile, China is gearing up for another round of major domestic stimulus. Such an increase would mean more U.S. exports, creating a much more favorable economic climate.
Economic data, particularly concerning the labor market, will play a critical role in determining the timing of forthcoming U.S. rate cuts. As the Federal Reserve walks this narrow tightrope, policymakers will probably still be on the defensive. Jerome Powell’s focus on a wait-and-see attitude with regard to tariffs and inflation digs this hole deeper.