The Fed is meeting. Don't expect an interest rate cut

The Federal Reserve on Tuesday began its two-day June meeting in Washington, and no one expects an interest rate cut. In fact, futures traders see the odds of the Fed cutting its benchmark rate as less than 1%.

If the Fed leaves rates uncut as expected, it will be despite mounting political pressure from President Donald Trump, who has openly called Fed Chair Jerome Powell a “FOOL,” among many other epithets.

So why is the Fed reluctant to cut interest rates?

It comes down to inflation expectations.

While consumer inflation has cooled in recent months, it remains above the Fed’s 2% target and has remained persistently elevated for years. Trump’s second-term tariffs have introduced new uncertainty across the market and the globe, deeply affecting the U.S.’s most important trading relationships. Officials worry that tariff announcements and the chaos surrounding their implementation could drive prices higher, especially as Americans become more accustomed to trade-policy whiplash.

Fed Chair Powell, first appointed by Trump in 2017, has insisted he won’t move preemptively. “We don’t feel like we need to be in a hurry,” he said in May. “We feel like it’s appropriate to be patient.”

That puts the Fed in an increasingly awkward position. Trump wants cuts now to support his economy as tariff pressures build. But Powell is wary of repeating the Fed’s 2021 mistake, when it underestimated how long high inflation would last.

Wait, see, and maintain

In effect, the Fed is choosing to wait and see, balancing the risk of rising unemployment if it holds rates too high against the risk of reigniting inflation if it cuts them too soon.

While the stock market has recovered from its April “Liberation Day” lows, U.S. GDP contracted slightly in Q1 and may contract again in Q2. Job growth is slow, and consumer sentiment appears to be improving but still shaky. Powell and his colleagues remain focused on credibility, underlining the Fed’s status as an independent, not political, body. Cutting rates too early, they reason, could damage the Fed’s reputation more than any presidential social-media post.

The larger market seemed to agree when, several months ago, Trump floated an attempt to fire Powell and stocks slid hard, with the Dow dropping 1,000 points in a single day. Such market moves suggest that the value of an independent Fed — one that sticks to its public-service mission and can't be forced to do politicians' bidding — runs into the trillions.