Trump loyalists switch sides to support July interest rate cut, Powell faces dual political and economic pressures

1、 Suddenly! Key figures in the Trump camp turn to support interest rate cuts

On June 24th, the internal game within the Federal Reserve regarding the path of interest rate cuts further intensified. Michelle Bowman, the Vice Chair of Federal Reserve Regulation nominated by Trump, explicitly stated in congressional testimony that if inflation remains moderate, she supports initiating interest rate cuts as early as July to “prevent potential structural weakness in the labor market. This statement echoes another confidant of Trump, Federal Reserve Governor Christopher Waller, who emphasized in his speech on June 20 that the impact of tariffs on inflation “may be short-lived” and that the Fed should “prioritize economic downside risks” to open a policy window for a July rate cut.

It is worth noting that Bauman, as Trump’s 2023 nominee for the Federal Reserve’s top regulator, has been interpreted by the market as a “landmark victory for the White House in pressuring the Fed. In an interview with The Hill on June 24th, Trump bluntly stated, “This is the right direction, and Powell should listen to the opinions of these professionals

2、 Powell’s Dilemma: The Struggle between Independence and Political Pressure

Faced with the defection of his confidants, Powell still maintained a “wait-and-see” stance during the Senate Banking Committee hearing on June 24th. He emphasized that although the monthly retail sales rate fell by 0.9% in May and industrial output unexpectedly decreased by 0.2%, the lagged impact of tariffs on inflation has not yet fully manifested, and the Federal Reserve needs to “wait for more data to confirm the inflation path”. This statement resonates with the stance of the seven officials in the dot matrix chart who stated ‘no interest rate cuts within the year’.

However, political pressure is breaking through the traditional “independence barrier” of the Federal Reserve. After the hearing, Trump tweeted again criticizing Powell’s “incompetence” and hinted at the possibility of limiting the Federal Reserve’s authority through legislation. More importantly, the joint guidance of Bauman and Waller has increased the probability of a July interest rate cut shown by the CME Federal Reserve Watch tool from 14.5% to 28%, and market expectations of a policy shift are forcing Powell to adjust his strategy.

3、 The dual variation of interest rate cut expectations and geopolitical risks

The double-edged sword effect of expected interest rate cuts

Waller and Bauman’s dovish remarks pushed the US dollar index down to 98.2, theoretically favoring gold. However, the safe haven retreat triggered by the ceasefire agreement dominated market sentiment, and gold prices failed to break through the key resistance level of $3366. Bank of America analysts pointed out that if the interest rate cut is implemented in July, the decline in real interest rates will push gold prices towards $3400; On the contrary, if Powell remains hawkish, gold prices may drop to $3300 support.

The implicit support of geopolitics

Despite Iran’s acceptance of the ceasefire agreement, the subsequent impact of US airstrikes on Iran’s nuclear facilities is still fermenting. According to data from the World Gold Council, global central banks increased their holdings of gold by 60000 ounces in May, expanding their reserves for seven consecutive months, highlighting the attractiveness of geopolitical risks for long-term allocation. Bank of America predicts that if the Middle East conflict escalates again, gold prices may break through $3400.

Currently, Powell is standing at a rare political and economic crossroads in the history of the Federal Reserve. The defection of Trump’s confidants, the urgent expectation of the market for interest rate cuts, and the uncertainty of geopolitics together constitute the complex constraints of his policy choices. For gold investors, it is important to closely monitor the PCE data on June 27th and the FOMC meeting in July, as these two events may determine the direction of the gold price’s breakthrough. In this’ independence defense battle ‘, Powell’s every statement could become a trigger for severe market volatility.