The Federal Open Market Committee’s decision last week to keep the Federal Funds rate unchanged was widely anticipated. Yet it marked another disappointment for President Donald Trump, who has pressed the central bank for months to cut rates.
The rift at the heart of U.S. monetary policy became more apparent in July, when two Governors dissented from the majority—the first time in over three decades that more than one broke ranks at the same meeting. That alone was enough for markets to start pricing in a cut as early as September.
Fresh data then fed the debate. Headline inflation for July held steady at 2.7%, matching June’s figure but just below expectations. Markets treated it as softer-than-anticipated, yet “core” CPI—excluding food and energy—rose to 3.1%, the highest since February. Producer prices added to the concern, rising 0.9% in July versus consensus expectations of 0.2%.
“The acceleration in inflation suggests that wholesalers have started to pass on the higher cost due to the tariffs rather than take the hit themselves in the form of reduced profit margins,” wrote Dr Komal Sri-Kumar, president of Sri-Kumar Global Strategies, in his weekly SriKonomics newsletter. He warned that as producer prices typically foreshadow consumer inflation, Americans should expect higher CPI prints in the months ahead.
Despite these signals, investors continue to expect easing. Weaker employment figures across May, June and July have fuelled that view. Sri-Kumar, however, cautions that such hopes misread the limits of policy: “The Federal Reserve cannot meet both its objectives—employment and price stability—by manipulating just one policy instrument, viz., interest rates.” Cutting now, he argues, risks importing stagflation, with slower growth and persistent inflation.
Beyond the inflation data, political pressure on the Fed and on official statistics is raising alarms. Earlier this month, President Trump dismissed Bureau of Labor Statistics Commissioner Erika McEntarfer after jobs data fell short of White House expectations. Her replacement, E.J. Antoni, has publicly backed the President’s tariff strategy and disparaged the BLS in the past. For Sri-Kumar, the episode underscores the risk that “future economic data releases may be expected to align more closely with political preferences than with statistical reality.”
Meanwhile, reports suggest the White House and Treasury Secretary Scott Bessent are drawing up a long list of potential successors to Powell, with names overlapping current and prospective voters on the FOMC itself. That could further blur the line between political ambition and monetary policy.
“The Fed’s independence has always relied less on legal safeguards than on the shared norm that monetary policy is insulated from partisan interference. That norm is under siege,” Sri-Kumar warned. For bond and currency markets, the credibility of both U.S. statistics and monetary decisions is central to investment choices. The risk, he suggested, is that “the credibility of U.S. economic data and monetary policy is in jeopardy.”
For now, Powell remains Chair until May 2026. With inflation edging up and tariffs still working their way through the economy, he appears intent on prioritising credibility over politics, even at the cost of continued confrontation with the White House.
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