Inflation and the Fed

On Tuesday the U.S. will publish its inflation report for that month of July. Consensus expects an uptick of 0.2% vs June to place annual price increase at 2.6%. That is likely insufficient for the Fed to act at the end of the month, where the probabilities for a rate cut are basically zero, and maybe even for the September meeting where the odds are 59%, right on the limit if we follow the Fed pattern. If we don’t get a cut at the end of the month, expect another round of bullying from Trump to chairman Powell. The law specifies that Governors, including the Chairman, can only be removed “for cause” by the President, meaning there must be a specific, legally justifiable reason such as misconduct or failure to perform duties. While Trump could attempt to pressure Powell to resign or explore legal avenues to challenge his position, firing him outright without cause would likely face significant legal challenges and could be struck down by courts. Historically, no Federal Reserve Chairman has ever been removed by a president. He will have to wait till May to replace him although he will move in the fall of this year to look for Powell’s replacement as hinted by Secretary Bessent. A change in the direction of interest rates is coming.

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