Fed Signals Rate Cut Delay Amid Inflation Jitters

September Rate Cut Probability Dwindles as Powell Emphasizes Caution

Federal Reserve Chair Jerome Powell‘s recent remarks have significantly dimmed expectations for an interest rate cut in September, as policymakers remain wary of potential inflation stemming from ongoing tariffs. The market now widely anticipates a hold until at least October.

Policy Stance Remains Steady

Following the Federal Open Market Committee’s decision to maintain its benchmark rate for the fifth consecutive meeting, financial markets interpreted **Powell**’s comments and the committee’s statement as indicators of a cautious approach. CME Group’s FedWatch tool shows the probability for a September rate adjustment has fallen to approximately 40%. Futures contracts suggest a September federal funds rate of 4.225%, a slight decrease from the current 4.33% level.

“For the time being, we’re well positioned to learn more about the likely course of the economy and the evolving balance of risks before adjusting our policy stance.”

—Jerome Powell, Fed Chair

Powell indicated that the current policy stance is deemed appropriate to mitigate inflation risks, leaving room for future adjustments. However, traders are now projecting only one rate cut for the remainder of the year.

Economic Uncertainty Fuels Hesitation

Financial analysts suggest the Fed is prioritizing clarity on the economic outlook before making further policy decisions. “It almost feels like they’re not going to make a decision until he can say there’s no uncertainty in the economy,” noted **Jill Gateman**, co-head of U.S. commercial banking at TD Bank. She added, “Uncertainty is the new constant, and we have to learn to live with some level of uncertainty in this environment.”

“There’s just too many moving parts to think that we’re going to wait uncertainty away before a decision can be rendered.”

—Jill Gateman, Co-head of U.S. Commercial Banking, TD Bank

President Trump Criticizes Fed Leadership

President **Donald Trump** publicly criticized **Powell**’s leadership, expressing frustration with the Fed’s perceived delay in cutting rates. The president took to his Truth Social platform to voice his disapproval, stating, “Jerome ‘Too Late’ Powell has done it again!!! He is TOO LATE, and actually, TOO ANGRY, TOO STUPID, & TOO POLITICAL, to have the job of Fed Chair.”

Jerome “Too Late” Powell has done it again!!! He is TOO LATE, and actually, TOO ANGRY, TOO STUPID, & TOO POLITICAL, to have the job of Fed Chair. He is costing our Country TRILLIONS OF DOLLARS, in addition to one of the most incompetent, or corrupt, renovations of a building(s) in the history of construction! Put another way, “Too Late” is a TOTAL LOSER, and our Country is paying the price!

— Donald J. Trump (@realDonaldTrump) September 10, 2023

Ironically, **Powell** had described his recent meeting with the President as pleasant.

Market Sentiment Shifts with Data

Following initial market disappointment over the Fed’s cautious stance, strong corporate earnings, particularly in the technology sector, bolstered investor sentiment, leading to modest market gains. The trajectory of inflation, influenced by trade policies, and the potential for a broader hiring slowdown remain key watchpoints.

A recent Commerce Department report indicated that personal consumption expenditures, the Fed’s primary inflation gauge, rose to 2.6% in June. Core inflation, excluding volatile food and energy prices, stood at 2.8%.

“By December, they’ll have to cut, because I think the economy will have weakened by then and they’ll have clarity on the price impact for tariffs,” commented **John Velis**, Americas macro strategist at BNY. “My base case is December, pending what happens over the next few months with the data.”

Looking Ahead: Jackson Hole and Beyond

The Federal Reserve’s next significant gathering will be its annual retreat in Jackson Hole, Wyoming, in August. While not a formal FOMC meeting, the event historically features influential policy speeches from the Fed chair. Analysts suggest that continued moderate inflation could eventually prompt the Fed to adjust its policy toward a more neutral stance.

The U.S. economy added 272,000 jobs in May 2024, exceeding economists’ expectations and contributing to ongoing debates about the timing of potential Federal Reserve interest rate cuts. This figure from the U.S. Bureau of Labor Statistics highlights the resilience of the labor market, which the Fed closely monitors. (U.S. Bureau of Labor Statistics, May 2024)