What Do the Statements of the FED and Chairman Jerome Powell Mean? Will There Be an Interest Rate Cut? We Have Summarized All of It Here!

The FED kept the policy interest rate stable in the range of 4.25%–4.50%, in line with expectations. This means that the interest rates remained unchanged for the fourth consecutive meeting.

However, the "dot plot" (dot graph) and economic projections that the markets have been eagerly awaiting revealed that expectations for interest rate cuts are gradually weakening.

The Fed's interest rate expectations for 2026 painted a more cautious picture compared to the previous period. In March, only 4 members thought there should be no interest rate cut this year, while this number rose to 7 in June. On the other hand, 10 members expect at least two interest rate cuts in 2024, while 2 members foresee only one cut. The expectation for two cuts in 2025 remains unchanged, while the 2026 expectation has been reduced from two cuts to one.

In March, only 4 members argued that there should be no interest rate cuts this year, while at the June meeting this number increased to 7. On the other hand, 10 members foresee at least two interest rate cuts within 2025, while 2 members expect only one cut. For 2026, the expectation for interest rate cuts has been reduced from two cuts to one.

Ahead of the interest rate decision, President Donald Trump reiterated his harsh criticism of FED Chairman Jerome Powell. Speaking to reporters at the White House, Trump said, "There is a very stupid person at the FED." Trump also stated that he wants interest rates to be aggressively lowered by 100 to 250 basis points.

Trump's "Day of Liberation" customs tariffs, announced on April 2 and later suspended the largest ones, raised the average customs tariff rate in the US to its highest level since the 1930s. There are comments that this situation has started to directly influence the FED's decisions.

FED officials want to see clear evidence of a softer labor market or that the impact of tariffs on prices remains limited for a rate cut. However, current data is sending mixed signals. While the slowdown in the housing sector indicates that high interest rates are putting pressure on the economy, unemployment remains low. However, the number of people receiving long-term unemployment benefits is at a three-year high, and hiring figures are also being revised downward.

According to economist Neil Dutta from Renaissance Macro, inflation data came in lower than expected in May. "There were customs duties in May, but inflation was weak. What does this tell us? Companies may not be able to pass high costs onto consumers. This could lead to narrowing profit margins and layoffs," he said.

One reason for the FED's cautious approach to interest rate policy is that financial conditions are still relatively loose. The spread between corporate bond yields and Treasury yields is low, credit supply is strong, and stock markets are near historical highs. In particular, the jump in stock prices following announcements from certain companies about stablecoin-based payment systems indicates that there is still significant speculative capital in the market.

This situation is causing the FED to avoid the risk of an early interest rate cut that could lead to a resurgence of inflation. Additionally, as economist David Wilcox has pointed out, confidence in the FED has been shaken following one of the largest inflation shocks in recent years. This makes the control of inflation expectations more fragile.

The FED's decision and projections today show that the institution does not want to rush into interest rate cuts and would like to see more data. Caught between fighting inflation and preventing a slowdown in the economy, the FED will likely maintain its cautious policy until the fall.

*It is not investment advice.

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