- While still soft, CPI print shows signs of tariff price pressures beginning to impact consumers
- U.S. Treasury rates sell off as possibility of rate cuts fades
- Headlines swirl around Trump possibly firing Fed Chair Jerome Powell
The June Consumer Price Index (CPI) print was released on Tuesday – underlying inflation rose by less than expected; however, the underlying details signaled that companies are beginning to pass some tariff-related costs onto consumers. The core CPI print, which excludes food and energy prices, increased 0.2% from May, according to the Bureau of Labor Statistics. Goods categories exposed to the Trump administration’s tariff policies, including toys and appliances, rose at the fastest pace in years. Treasury rates rose on the news, as the print provided no clear signal to the market on the Fed’s future monetary policy actions.
The CPI print conveyed the effects of tariffs on consumer prices, although the increase was very moderate. Economists project that tariffs will cause prices to rise; however, the scale of the impact of the White House tariffs and the timing of any price increases remains uncertain. The uncertainty surrounding the impact that the Trump administration’s policies will have on the economy has given the Fed one option on future monetary policy – wait. Fed Chair Powell is content with hunkering down and waiting out the storm, holding rates steady until the full effects of the new fiscal policies have been digested by the economy. The Trump administration is growing frustrated with Powell’s “wait and see” approach, and rumors have begun swirling that President Trump will call for Powell’s resignation.
President Trump recently denied that he is seeking to remove Powell. “No, we’re not planning on doing anything,” Trump told reporters. Questions arose regarding Powell’s removal after Trump posed the idea to congressional Republicans in a meeting which was leaked to the media. Trump has recently criticized the Fed chair over the central bank’s decision to hold interest rates steady during his administration, despite cutting 100 bps shortly before the election, and the cost of the central bank’s renovations of its Washington headquarters.
Scott Bessent, the current U.S. Treasury Secretary, used the phrase “working the refs” to describe President Trump’s public criticisms of Powell – Bessent’s comment implies that Trump is putting public pressure on Powell, not with the intent to follow through with his general threats, but with the hopes that the public criticism will lead Powell to cut interest rates. Bessent said a “formal process” is already starting to identify a potential successor to Powell and also suggested that Powell should step down from the central bank’s board when his term as chair is up in May 2026.
JPMorgan Chase CEO Jamie Dimon recently opined on the Trump administration’s attacks on Fed Chair Powell; Dimon was critical of Trump’s rhetoric, describing the central bank’s independence as crucial. Dimon is the first leader of a major U.S. financial institution to publicly condemn the administration’s criticism of the central bank chief. “I think the independence of the Fed is absolutely critical,” Dimon told media members in a call after the bank’s earnings announcement. “Playing around with the Fed can have adverse consequences, the absolute opposite of what you might be hoping for.”
The Fed’s ability to operate without political interference is crucial for preserving the dollar’s status as the world’s reserve currency. Any attempts to undermine this independence, such as the rumored removal of Fed Chair Jerome Powell, could have significant repercussions. Not only would it erode confidence in the U.S. monetary policy, but it would also likely lead to upward pressure on Treasury yields as investors demand higher returns to compensate for the increased risk. With Powell’s term ending next May, the race to replace him is heating up, and the candidates’ views on Fed independence are under intense scrutiny. Their positions could significantly influence the yield curve and borrowing costs across all asset types.
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