According to the Zhitong Finance APP, although the academic community generally expects that President Trump's tariff policy will significantly drive up inflation in the coming months, the moderate price increases so far have called this consensus into question. This situation has bolstered the White House's confidence and intensified policy divisions within the Federal Reserve.
Due to expectations of rising inflation, the Federal Reserve has remained inactive this year, keeping interest rates unchanged. The Trump administration is exerting immense pressure on Federal Reserve Chairman Jerome Powell to cut interest rates, and recently, two Federal Reserve governors have publicly disagreed with Powell, arguing that rate cuts should have started in July.
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Two key data releases in the coming weeks—the non-farm payroll report on July 3 and the consumer price index on July 15—will serve as important bases for the Federal Reserve's decision-making. Although these two data points are expected to show the impact of tariffs for the first time, any surprises could alter the rate cut timeline.
&#34;The current situation is so tricky, partly because we have never conducted such policy experiments before,&#34; said William English, a professor at Yale School of Management and former senior economist at the Federal Reserve, when discussing tariffs. &#34;This goes beyond the experiential scope of the modern American economy, so any predictions are hard to guarantee accuracy.&#34;
Recent data shows that despite the ongoing implementation of tariff policies, inflation remained moderate in May, prompting Trump and his allies to intensify their criticism of the Federal Reserve. The U.S. president has repeatedly insulted Powell as a &#34;bonehead&#34; and called him &#34;one of the dumbest and most destructive people in government.&#34;
Several government officials, including Kevin Hassett, director of the White House Council of Economic Advisers, as well as typically silent congressional Republicans on monetary policy, have joined the condemnation. Hassett declared on June 23 that &#34;the Federal Reserve has no reason not to cut rates immediately.&#34;
Hassett is seen as a potential successor to Powell when his term ends next year. He emphasized that data to be released in the coming weeks: &#34;I suspect that if they see another month of data, they will have to admit that current rates are too high.&#34;
This debate reflects the policy dilemma facing the Federal Reserve: if it hastily cuts rates when the price pressures from tariffs become evident, it may be forced to take more aggressive measures in the future; but if it maintains high rates to address potentially unmet inflation expectations, it could unnecessarily suppress the economy and even harm the labor market.
Forecasters expect inflation to accelerate in the coming months. Powell stated last week during congressional testimony that as the impact of tariffs permeates the economy, significant price increases are expected in the data for June, July, and August. However, he added that Federal Reserve officials &#34;fully accept&#34; the possibility that the impact of tariffs may be less than expected, &#34;and if that is indeed the case, it will affect our policy.&#34;
The U.S. Bureau of Labor Statistics will release the June consumer price report on July 15, two weeks before the Federal Reserve's next policy meeting. Federal Reserve governors Waller and Bowman (both appointed by Trump) have already expressed differing views from Powell and other colleagues, suggesting that if the data supports it, a rate cut may be possible next month
Waller stated in an interview on June 20, &#34;I believe we have room to cut interest rates, and then we can observe the inflation trend.&#34; He added that if necessary, the central bank can pause rate cuts at any time. &#34;We have paused rate cuts for six months to observe, and the current data is performing well.&#34;
Nevertheless, according to federal funds futures, investors currently believe the probability of a rate cut in July is only about 20%, betting instead that the next rate cut will occur in September.
The Mathematical Logic of Tariffs
The moderate inflation data as of May indicates that despite Trump imposing tariffs on dozens of U.S. trading partners, and the duration and final tax rates of the tariffs remaining widely uncertain, businesses are at least currently managing to avoid price increases.
Josh Hirt, a senior U.S. economist at Vanguard, stated that one possible explanation is that businesses are digesting the imported inventory they hoarded in the first quarter to avoid tariffs.
Hirt's calculations show that the actual tariff rates paid by importers this year are on average lower than the nominal rates set by Trump, primarily because a large number of goods were imported before the tariffs took effect.
Another uncertainty mentioned by Powell in his testimony is how the costs of tariffs will be shared among exporters, importers, retailers, manufacturers, and consumers.
Powell stated, &#34;Initially, importers will pay the tariffs, but the ultimate costs will be shared among these five entities.&#34; He added that data shows at least some of the impact will be passed on to consumers.
Bloomberg Economics economists Estelle Ou and Andrej Sokol stated, &#34;After a brief decline in April and early May, container shipping volumes from China to the U.S. have risen again, and year-to-date import volumes are expected to exceed normal levels at least before summer. If this trend continues, U.S. stores will be well-stocked before the holiday season, which may mean businesses will not need to rush to pass on tariff costs this year.&#34;
Before the inflation report on July 15, the U.S. Bureau of Labor Statistics will release equally important monthly employment data on July 3. So far this year, there have been almost no signs that tariffs have impacted the labor market, allowing Powell and most of his colleagues to maintain that a robust labor market means there is no need to rush to cut interest rates.
However, similar to inflation data, forecasters generally believe that the potential impact of trade policy turmoil on the labor market will not become apparent before the June data is released. A survey shows that economists expect the report to be released this week will indicate that the unemployment rate in June has slightly risen to 4.3%, the highest level since 2021.
Bowman stated in a speech on June 23 that Federal Reserve officials should &#34;recognize that given the recent weakness in consumption and the signs of fragility in the labor market, the downside risks to the employment target may soon intensify.&#34;
The monthly consumption data released by the Bureau of Economic Analysis last Friday showed that household spending fell in May, as consumers cut back on non-essential services such as travel and dining. Forecasters warned that rising prices in the coming months will further squeeze consumption
The Yale School of Management stated that the impact of tariffs will depend on many difficult-to-quantify factors. However, &#34;the intuition that tariff costs will eventually be partially passed on to prices seems reasonable. I still believe the basic logic is not wrong.&#34;

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The non-farm payroll report and consumer price index to be released in the next two weeks will become important bases for the Federal Reserve's interest rate cut decision. Although the academic community generally expects Trump's tariff policy to drive up inflation, the current moderate price increases have called this consensus into question. Internal opinions within the Federal Reserve on interest rate cuts are increasingly divided, with the Trump administration pressuring for a rate cut. The release of key data may change the timeline for rate cuts

The dual reports on employment and inflation set the tone! The Federal Reserve's interest rate cut path faces the test of Trump's tariffs