US Fed independence under threat, say economists, but no one expects a July rate cut- Reuters poll

Reuters

23-07-2025

BENGALURU, July 23 - The U.S. Federal Reserve's independence is under threat from mounting political interference, according to a clear majority of economists polled by Reuters, although no one expects a July interest rate cut despite a recent divergence in views among policymakers.
President Donald Trump has made it almost a daily routine to personally attack Fed Chair Jerome Powell over the central bank's stance of holding rates due to tariff-related risks of higher inflation. A recent jump in inflation suggests businesses are now passing some of the tariffs onto consumers.
Most Federal Market Open Committee members favor holding rates steady, but a few, including Governor Chris Waller and Trump appointee Fed Vice Chair for Supervision Michelle Bowman, have recently advocated a reduction as soon as July 30.
Powell's term is set to expire in May 2026. Waller last week said he would accept the job as the bank's head if he was offered it by Trump.
An over 70% majority of economists in the July 17-23 Reuters poll who answered an additional question, 36 of 50, said they were worried about the Fed's independence from political influence, including 10 who said they were very concerned. The remaining 14 said they were not.
"I am more worried about the Fed's independence than I was a few months ago, and the main reason for that is the recent behaviour of Governors Bowman and Waller. It's very notable they are diverging from the consensus," said Philip Marey, senior U.S. strategist at Rabobank.
"This year is still Powell's Fed. The current Fed is very cautious and wants to wait for the data and go only when they're sure ... It is kind of a policy paralysis at the moment and I don't think that will change as long as Powell has some grip on the FOMC," he added.
All 105 economists said the Fed, which last cut its key interest rate to 4.25%-4.50% in December, will hold rates again at the conclusion of its July 29-30 meeting. Most respondents maintained their rate outlook or expected fewer reductions compared with a poll taken last month.
A slight 53% majority of economists, 56 of 105, forecast a cut in September, in line with market pricing.
But with less than half the year remaining, a clear consensus on where rates would be by end-2025 remains elusive. Economists are waiting for clarity on trade policies as a deadline for Trump's so-called "reciprocal" tariffs first announced in April approaches. That deadline of August 1 is itself an extension from a previous July 9 deadline.
"Tariffs could affect things both in terms of higher inflation (and) it could slow the economy. The Fed doesn't know exactly what that mix is going to be and that's reason enough to wait," said Jonathan Millar, senior U.S. economist at Barclays.
Just under two-thirds of forecasters expect one or two rate cuts this year, with nearly a fifth expecting no cuts at all. Interest rate futures are pricing in two reductions. The Fed will cut twice next year, poll medians showed.
"We've had a very substantial easing of policy over the last few months just from the fact the dollar has weakened and improvements in equity markets. It's not as if things are really screaming out for a rate cut," Millar said.
Inflation forecasts were broadly unchanged from last month, with economists forecasting it will average above the Fed's 2% target through at least 2027.
The recent passage of Trump's signature spending bill, expected to add $3.4 trillion to an already enormous $36.2 trillion debt pile, poses a further risk of reigniting price pressures.
The economy, which contracted 0.5% last quarter, is forecast to grow just 1.5% this year, a sharp slowdown from 2.8% in 2024.
Next year, it was expected to expand 1.6%, a view that has remained steady since May.
(Other stories from the Reuters global economic poll)