Powell Says Fed Needs To Manage Against Risk That Tariff Inflation Proves Persistent

Summary:

The Trump administration's tariff plans may well just cause a one-time jump in prices, but the risk it could cause more persistent inflation is large enough for the central bank to be careful in considering further rate cuts, Federal Reserve Chair Jerome Powell told a U.S. Senate panel on Wednesday.

Though economic theory may point to tariffs as a one-off shock to prices, "that is not a law of nature," said Powell, detailing why the central bank wants more information about the ultimate level of tariffs and the way they impact pricing and public expectations about inflation before lowering borrowing costs any further.

"If it comes in quickly and it is over and done then yes, very likely it is a one-time thing," that won't lead to more persistent inflation, Powell said. But "it is a risk we feel. As the people who are supposed to keep stable prices, we need to manage that risk. That's all we're doing," through holding rates steady for now.

The effects of tariffs "could be large or small. It is just something you want to approach carefully. If we make a mistake people will pay the cost for a long time."

Fed officials still expect to cut interest rates this year, but the timing is uncertain as officials wait on coming trade deadlines and hope for more certainty about the scope of the tariffs that will be imposed and the ways that rising import levies influence prices and economic growth.

Two days of hearings did little to shift expectations around Fed policy, with investors still anticipating two rate cuts this year.

But it did highlight the persistent rift between the Fed chair and President Donald Trump, who wants the Fed to cut rates immediately.

Republican lawmakers in the House on Tuesday and in the Senate Banking Committee on Wednesday pressed the Fed chair on why he seems reluctant to do so even though recent inflation data has been more moderate than expected.

The tone at times contrasted with Powell's generally congenial relationship with Republican and most Democratic lawmakers during his seven years as chair.

Ohio Republican Senator Bernie Moreno, echoing Trump's frequent criticism of Powell, accused him of shaping monetary policy through "a political lens, because you just don't like tariffs."

"We got elected by millions of voters. You got elected by one person who doesn't want you to be in that job," Moreno said of Powell, who was promoted to Fed chair during Trump's first term.

North Carolina Republican Senator Thom Tillis, however, backed a more cautious approach to the issue, noting that major retailers like Walmart, with sophisticated data tools, were having trouble pinpointing how tariffs will affect prices and demand.

"I'm just telling my colleagues we need to be realistic," Tillis said. Companies "have a lot of experts that probably are suggesting there may be some inflationary risk. We haven't realized it yet but I think we all need to keep our eyes open."

While Powell was completing what was likely his second-to-last set of semiannual appearances on Capitol Hill, Trump said he had narrowed "to within three or four people" who he intends to nominate as a successor for when Powell's term as chair ends in May.

The president's dismay with Powell is rooted in the central bank's refusal to cut interest rates as Trump's tariff plans have, in the view of a broad set of analysts and economists, raised the risk of higher inflation.

DIFFERENT THIS TIME

Powell, in response to other questions during the hearing, noted the Fed has no modern example of tariff increases of the size Trump is considering, with the tariffs Trump imposed in his first term far smaller than what seems likely now and enacted at a time when inflation was low.

The fact that inflation has been above the Fed's 2% target for roughly four years, Fed officials worry, may make a new surge in prices more likely to turn into a more persistent round of price increases.

"This is different," Powell said. "There is not a modern precedent."

Even with recent inflation more moderate than expected, the central bank expects rising import taxes will lead to higher inflation beginning this summer, Powell said, and the Fed won't be comfortable cutting interest rates until officials see if prices do begin to rise.

"We should start to see this over the summer, in the June number and the July number...If we don't we are perfectly open to the idea that the pass-through (to consumers) will be less than we think, and if we do that will matter for policy," Powell said during the House hearing on Tuesday.

Tariffs have already risen on some goods, but there is a coming July 9 deadline for higher levies on a broad set of countries - with no certainty about whether the Trump administration will back down to a 10% baseline tariff that analysts are using as a minimum, or impose something more aggressive.

The Fed has held its benchmark interest rate steady in the 4.25% to 4.5% range since December.

Economic projections released by the Fed last week showed policymakers at the median do anticipate reducing the benchmark overnight rate half a percentage point by the end of the year. But within those projections is a clear divide between officials who take the inflation risk more seriously - seven of 19 policymakers see no rate cuts at all this year - and those who feel any tariff price shock will be less severe or quickly fade. Ten of the 19 see two or more rate reductions.

(This story has been refiled to add the missing word 'that' to the headline)

Reporting by Howard Schneider; Editing by Chizu Nomiyama and Andrea Ricci

Source: Reuters

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Daniel Foster

President Donald Trump said the US would hold a meeting with Iran next week but cast doubt on the need for a diplomatic agreement on the country’s nuclear program, citing the damage that American bombing had done to key sites.

‘They’re Ready’

“We’re hopeful for a comprehensive peace agreement,” Witkoff said Wednesday on CNBC when asked what the next steps are for diplomacy with Iran. “We were hopeful when we first started negotiations. It didn’t quite work out that way, but today, we are hopeful. The signs are there.”

Witkoff said the US has been “having conversations with the Iranians” and that “multiple interlocutors are reaching out to us,” adding that his “strong sense” is that “they’re ready.”

Source: Yahoo Finance

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Liam Peterson

The dollar eased to a fresh 3-1/2-year low on the euro on Thursday as concerns about the future independence of the U.S. Federal Reserve undermined faith in the soundness of the country's monetary policy.

According to a Wall Street Journal report, U.S. President Donald Trump had toyed with the idea of selecting and announcing Federal Reserve Chair Jerome Powell's replacement by September or October, aiming to undermine his position.

"Markets are likely to bristle at any early move to name Powell's successor, particularly if the decision appears politically motivated," said Kieran Williams, head of Asia FX at InTouch Capital Markets.

"The move would raise questions about the potential erosion of Fed independence and potentially weaken credibility," he added. "If this was the case it could recalibrate rate expectations, trigger reassessment of dollar positioning."

Trump on Wednesday called Powell "terrible" for not lowering interest rates sharply, while the Fed Chair was telling the Senate that policy had to be cautious as the President's tariff plans were a risk to inflation.

Markets have nudged up the chance of a rate cut at the Fed's next meeting in July to 25%, from just 12% a week ago, and are pricing in 64 basis points of cuts by year-end, up from around 46 basis points last Friday.

The dollar slipped across the board as the euro gained 0.2% to reach $1.1687, its highest since October 2021. The next chart targets were $1.1692 and $1.1909.

Sterling rose 0.2% to $1.3690, its highest since January 2022, while the dollar was at its lowest against the Swiss francs since 2011 at 0.8033. The franc also struck a record peak on the yen around 180.55.

The dollar dipped 0.2% on the yen to 144.89, while the dollar index sank to its lowest since early 2022 at 97.491.

Trump's chaotic tariff policies are also coming back into focus as the clock ticks down to his July 9 deadline for trade deals.

JPMorgan on Wednesday warned the hit from tariffs would slow U.S. economic growth and lift inflation, resulting in a 40% chance of a recession.

"The risk of additional negative shocks is elevated, and we expect U.S. tariff rates to move higher," JPMorgan analysts wrote in their report. "The upshot of these developments is that our baseline scenario incorporates the end of a phase of U.S. exceptionalism."

The ending of "exceptionalism" has been a major theme in the dollar's decline in recent months, as investors question its dominant reserve currency status and as the main safe haven among currencies.

Source: Yahoo Finance

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Daniel Carter

Economic

Political

Commodity

Over the past two weeks, global crude prices surged as Israel launched a major air offensive on Iran over the latter's alleged nuclear weapons program.

Amid mounting alarm over potential supply disruptions, especially for crude in the Persian Gulf and Iran, WTI crude prices climbed to over $75/b -- up about $10-$15/b from early June, data from S&P Global Commodity Insights showed.

On June 23, US President Donald Trump announced a tenuous ceasefire agreement between Israel and Iran, sending crude prices tumbling to around $68.50/b. On June 24 and June 25, however, NYMEX crude prices appeared to stabilize around $65/b, according to data from CME Group and Commodity Insights.

Although the rally was short-lived, it did raise questions about how US crude oil producers might respond to higher prices.

In a social media post on June 23, Trump appeared to be addressing the US oil industry while calling on the US Department of Energy to "DRILL, BABY, DRILL." Trump's remarks came even as crude prices were in retreat.

For the US gas market, drilling and production decisions made by domestic crude producers can and often do have profound implications for US gas supply and benchmark prices.

As a co-product of crude oil production, US associated gas output comes primarily from the Permian Basin, as well as other major oil-focused shale plays like the Eagle Ford, the Bakken, the SCOOP-STACK and the Denver-Julesburg. According to the US Energy Information Administration, associated gas production accounted for nearly 37% of total US production in 2023.

For the US gas market, higher crude prices could fuel an increase in associated gas production and potentially weigh on benchmark Henry Hub prices -- presuming that crude-weighted operators respond to the higher WTI price signal by increasing their oil output.

Although the risk of a reescalation in the Israel-Iran conflict has kept crude prices in the mid-$60s/b -- up from the low-$60s in early June, that change is unlikely to motivate many US crude oil producers to increase output -- especially considering the continued production hikes approved by OPEC+ members in recent months.

Unless WTI crude oil prices consistently hold up above $70/b, oil-directed activity should be flat to lower, according to Svetlana Tretyakova, an oil analyst with Rystad Energy.

"Capital allocation is being guided by full-year and mid-term planning, not short-term price moves," Tretyakova said. "Unless WTI moves sustainably above $70 for at least a quarter, our base case holds: production flatlines before declining in 2026 and beyond."

On June 25, as the tentative ceasefire between Israel and Iran continued to hold, NYMEX WTI crude prices were up about $1.50/b on the day to around $65.50/b, data from CME Group showed.

"With global [oil] supply unimpeded, we would expect the risk premium to continue to unwind, and for crude to potentially push lower if the US loosened sanctions on Iran's crude industry," Matt Portillo, market analyst with TPH Energy Research, said in a June 23 market note.

"Lower crude prices remain a priority for [Trump] with incremental Iranian barrels only piling onto our already bearish outlook," Portillo said.

On first-quarter earnings calls, more than a month prior to the Middle East conflict, both US and Canadian oil producers had continued to signal restraint in their planned capital spending -- a course that seems unlikley to change. Some producers also announced cuts to their drilling and completion programs. So far, efficiency gains have helped keep output stable to modestly higher this year.

From January to May, crude oil production in the Permian Basin grew from about 6.4 million b/d to an estimated 6.6 million b/d, according to data from Commodity Insights.

In the latest earnings round, more than a handful of oil-weighted producers said they were planning spending and activity cuts in the Permian -- a key basin for associated gas production that accounted for over 60% of the US total in 2024.

Among those planning reductions were Matador Resources, Occidental Petroleum, Diamondback Energy, EOG Resources and Coterra Energy, all of whom said they were planning some combination of lower spending, rig cuts and/or reduction to their well-completion programs.

Crude oil producers have kept their promise. Since the start of the second quarter, the Permian Basin rig count has continued to decline from over 290 rigs to an average 275 over the past four weeks.

Source: S&P Global Platts

To stay updated on all economic events of today, please check out our Economic calendar

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Manuel

Political

Stocks

US stock futures held steady as President Trump talked up his search for a successor to Federal Reserve Chair Jerome Powell.

Futures attached to the Dow Jones Industrial Average (YM=F), the benchmark S&P 500 (ES=F), and the tech-heavy Nasdaq 100 (NQ=F) flatlined.

The Wall Street Journal reported late Wednesday that the president's frustration with Powell's "wait and see" approach to interest rates has led him to consider announcing his pick to succeed the Fed chair in September or October. Powell's term ends in May 2026 and such an announcement would be far earlier than the typical three or four month transition period.

Trump said earlier on Wednesday he is actively considering replacements for Powell, adding "I know within three or four people who I’m going to pick."

Powell wrapped up two days of testifying before the House and the Senate, where he stressed to lawmakers the central bank is "well-positioned" to wait and see how Trump's tariffs are impacting the economy before reducing rates.

Stocks wobbled throughout the day with the S&P 500 finishing just below a record high. Investors' jubilation from the day before, sparked by an end to hostilities between Israel and Iran, moderated even as Trump declared the conflict "over." Nvidia (NVDA), meanwhile, leaped to a record high.

The main event for Wall Street to end the week lands Friday with the release of the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) report. Investors will be watching closely for any signs that Trump's tariffs pushed prices higher.

Source: Yahoo Finance

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Daniel Carter

Political

Middle East Situation

Trump said his decision to unleash huge bunker-busting bombs in Sunday's attack had devastated Iran's nuclear program and called the outcome "a victory for everybody".

"It was very severe. It was obliteration," he said, shrugging off an initial assessment by the U.S. Defense Intelligence Agency that Iran's path to building a nuclear weapon may have been set back only by months.

Meanwhile, anxious Iranians and Israelis sought to resume normal life after 12 days of the most intense confrontation ever between the two foes and a ceasefire that took effect Tuesday.

Speaking in The Hague where he attended a NATO summit on Wednesday, Trump said he did not see Iran again engaging in nuclear weapons development. Tehran has for decades denied accusations by Western leaders that it is seeking nuclear arms.

"We're going to talk to them next week, with Iran. We may sign an agreement. I don't know. To me, I don't think it's that necessary," Trump said.

"I'll tell you, the last thing they want to do is enrich anything right now. They want to recover," he said, referring to Western accusations that Iran has been enriching uranium to near-weapons-grade purity.

Later on Wednesday, U.S. Central Intelligence Agency Director John Ratcliffe said in a statement that the U.S. air strikes had “severely damaged” Iran's nuclear program, but he stopped short of declaring that the program had been destroyed.

The agency confirmed a “body of credible evidence" that several key Iranian facilities were destroyed and would take years to rebuild, he said.

Israel's nuclear agency assessed the strikes had "set back Iran's ability to develop nuclear weapons by many years". The White House also circulated the Israeli assessment, although Trump said he was not relying on Israeli intelligence.

Trump said he was confident Tehran would pursue a diplomatic path towards reconciliation. The president gave no details on the discussions next week such as the venue and participants.

If Iran tried to rebuild its nuclear programme, "we won't let that happen. Number one, militarily we won't," he said, adding that he thought "we'll end up having something of a relationship with Iran" to resolve the issue.

The head of the U.N.'s nuclear watchdog, Rafael Grossi, dismissed what he called the "hourglass approach" of assessing damage to Iran's nuclear programme in terms of months needed to rebuild as besides the point for an issue that needed a long-term solution.

"In any case, the technological knowledge is there and the industrial capacity is there. That, no one can deny. So we need to work together with them," he said. His priority was returning international inspectors to Iranian nuclear sites, which he said was the only way to find out precisely what state they were in.

People gesture as they attend a gathering to support Iran's Armed Forces, after U.S. President Donald Trump announced a ceasefire between Israel and Iran, in Tehran, Iran, June 24, 2025.

IRAN PRESIDENT HINTS AT DOMESTIC REFORMS

Israel's bombing campaign, launched with a surprise attack on June 13, wiped out the top echelon of Iran's military leadership and killed leading nuclear scientists. Iran responded with missiles that pierced Israel's defences in large numbers for the first time.

Iranian authorities said 627 people were killed and nearly 5,000 injured in Iran, where the extent of the damage could not be independently confirmed because of tight restrictions on media. Twenty-eight people were killed in Israel.

Israel claimed to have achieved its goals of destroying Iran's nuclear sites and missiles; Iran claimed to have forced the end of the war by penetrating Israeli defences.

Israel's demonstration that it could target Iran's senior leadership seemingly at will posed perhaps the biggest challenge yet for Iran's clerical rulers, at a critical juncture when they must find a successor for Supreme Leader Ali Khamenei, now 86 and in power for 36 years.

Iranian President Masoud Pezeshkian, a relative moderate elected last year in a challenge to years of dominance by hardliners, said it could result in reform.

"This war and the empathy that it fostered between the people and officials is an opportunity to change the outlook of management and the behaviour of officials so that they can create unity," he said in a statement carried by state media.

Still, Iran's authorities moved swiftly to demonstrate their control. The judiciary announced the execution of three men on Wednesday convicted of collaborating with Israel's Mossad spy agency and smuggling equipment used in an assassination. Iran had arrested 700 people accused of ties with Israel during the conflict, the state-affiliated Nournews reported.

During the war, both Israel Prime Minister Benjamin Netanyahu and Trump publicly suggested that it could end with the toppling of Iran's entire system of clerical rule, established in its 1979 revolution.

But after the ceasefire, Trump said he did not want to see "regime change" in Iran, which he said would bring chaos at a time when he wanted the situation to settle down.

RELIEF, APPREHENSION, EXHAUSTION

In both Iran and Israel, residents expressed relief at the end of the fighting, but also apprehension.

"We came back after the ceasefire was announced. People are relieved that the war has stopped, but there's a lot of uncertainty about what comes next," said Farah, 67, who returned to Tehran from nearby Lavasan, where she had fled to escape Israeli bombing.

In Tel Aviv, Rony Hoter-Ishay Meyer, 38, said the war's end brought mixed emotions: relief that children could return to school and normal life resume, but exhaustion from the stress.

"Those past two weeks were catastrophic in Israel, and we are very much exhausted and we need to get back to our normal energy."

Source: Reuters

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Manuel

Cryptocurrency

Bitcoin climbed above $108,000 on Wednesday, reaching its highest level in weeks, as traders ignored renewed unrest in the Middle East and a US stock market that stayed just below all-time highs.

The world’s OG crypto hit the intraday peak without hesitation, even while altcoins like Ether and Solana dipped slightly in the afternoon.

Meanwhile, lawmakers and regulators in Washington, D.C. made noise that could fuel even more momentum. Jerome Powell, the Federal Reserve Chair, appeared before the Senate Banking Committee earlier in the day and said that stablecoins have “come a long way” and now sit firmly inside the “traditional financial framework.”

Powell’s acknowledgment that crypto isn’t just a side show anymore came on the same day that the head of the Federal Housing Finance Agency, Billy Pulte, directed Fannie Mae and Freddie Mac to begin reviewing how crypto assets, like Bitcoin, could be used to qualify for mortgages.

Billy’s family founded Pulte Group, one of the country’s largest homebuilders, and his influence over the housing sector is substantial. That directive may be seen as a green light for digital assets in US real estate financing.

Trump’s NYSE crypto ETF faces decision window

Inside the New York Stock Exchange, officials are pushing forward a proposal tied to President Donald Trump’s Truth Social platform. The exchange submitted a rule change request that would allow the listing of a Bitcoin and Ethereum ETF linked directly to Trump’s company.

If the Securities and Exchange Commission gives it the go-ahead, it could launch within 90 days and expand the administration’s push to bring crypto closer to Wall Street. Trump, now back in the White House, has been vocal about making crypto a larger piece of the American financial system, and this ETF would mark one of the most significant steps yet.

On-chain analytics show a dramatic split in market behavior. Retail holders, wallets holding less than 1 BTC, have been selling consistently. These addresses dropped to 1.69 million BTC, a 54,500 BTC year-over-year decline, with daily outflows averaging 220 BTC. Bitcoin Tops $108,000 as Crypto Traders Shrug off Mid-East Tensions_1

Bitcoin Tops $108,000 as Crypto Traders Shrug off Mid-East Tensions_1

Over the past 12 months, these wallet movements had a –0.89 correlation to price, meaning the more they sold, the higher the price climbed. At the same time, large wallets, those holding at least 1,000 BTC now control 16.57 million BTC, after adding over 507,000 BTC in a year. These wallets are absorbing around 1,460 BTC per day and show a +0.86 correlation to price, which means their activity tracks upward movement.

That imbalance is sharp. Institutions are taking in nearly seven times the amount retail holders are letting go. Combine that with the fact that only 450 BTC are mined daily after the halving, and the pressure on supply becomes obvious. But what’s different this time is that small traders haven’t jumped back in.

There’s no retail FOMO yet, no frenzy like previous bull runs. Instead, individual holders are still exiting, hinting that the current rally might not even be close to peaking.

Binance, stablecoins, and key support levels show what comes next

Over on Binance, a big move happened on June 24. Net Taker Volume topped $100 million, something that hadn’t happened since June 9. It’s usually seen when overleveraged shorts get wiped or when retail traders pile in all at once. These bursts can fuel short-term buying, but they don’t guarantee lasting demand, and plus the activity also happened alongside $1.25 billion in stablecoin outflows from derivatives exchanges, the largest since mid-May.

Another number traders are watching closely is the Realized Price, also called the cost basis, of short-term holders (STH). These wallets, which hold for fewer than six months, represent over 40% of Bitcoin’s total market cap. That makes their entry points critical.

Right now, wallets in the 1 week to 1 month group are holding at $106,200, while those in the 1 to 3 month range sit at $95,000, and wallets from 3 to 6 months ago are at $93,300. When those values are weighted, the average cost basis lands at about $97,700.

That’s where things get fragile. Bitcoin’s current price is hovering near $100,000, a level that matters both emotionally and technically. If the price dips below $97k, a chain reaction of panic selling could hit the market, especially from STHs who are already nervous. It’s a narrow range, and a dangerous one.