The Fed Holds Firm: Why Powell Isn’t Rushing to Cut Rates Despite Political Pressure
With the U.S. election drawing nearer, investors in Hong Kong and around the world are keeping a close eye on the Federal Reserve’s next move. In an atmosphere thick with political rhetoric and economic uncertainty, Fed Chair Jerome Powell has taken a clear stand: the Fed won’t be pressured into cutting interest rates just to serve short-term political goals.
Speaking at a recent congressional hearing, Powell reiterated that monetary policy decisions are based on data — not politics. His remarks come in response to repeated calls from former President Donald Trump for aggressive rate cuts, a stance that some market watchers feared might influence the Fed’s direction during an election year.
Powell made it clear that the central bank’s primary focus remains inflation and employment. He underscored that Fed decisions are not influenced by government debt levels, federal deficits, or political demands. If and when rate cuts come, it will be because the data justifies it — not because of the election calendar.
Looking at the numbers, the case for cutting rates right now isn’t strong. The Core Personal Consumption Expenditures (Core PCE) price index — the Fed’s preferred measure of inflation — rose 2.7% year-over-year in May, still well above the Fed’s 2% target. Unemployment is holding steady at around 4.5%, with wage growth in a stable range. These figures suggest the economy isn’t showing signs of distress that would warrant an immediate rate cut.
Minutes from the latest Federal Open Market Committee (FOMC) meeting reveal a split among policymakers. While a minority pushed for a possible rate cut in July, the majority favor waiting until inflation shows a more decisive downward trend. Most expect the earliest cut might come in September, and some believe there may be no cuts at all until 2025. This division reflects just how uncertain the economic outlook remains.
Another wildcard is trade policy. If Trump returns to office and revives plans for steep tariffs, inflation could spike again—complicating the Fed’s path toward its 2% inflation target. Some Wall Street firms have already revised down their economic growth forecasts for the second half of 2025 and raised inflation expectations. So far, however, markets appear to be taking this into account, with U.S. stocks still reaching fresh highs in early July, suggesting investor sentiment remains resilient.
For now, the Fed seems content to wait and observe. This wait-and-see approach offers stability, but it also leaves markets guessing. For investors, it highlights the importance of focusing on fundamentals, diversifying portfolios, and weighing risks alongside opportunities.
In Hong Kong, the Fed’s decisions carry extra significance. U.S. interest rates influence local mortgage rates, property prices, and capital flows. That’s why staying informed about Fed policy isn’t just good economics — it’s smart investing.
