Dow, Gold slips on a hawkish hold by the Fed; USD surged

·       Fed may cut 25 bps each in September/October and December’25; if Trump’s tariff takes a definitive shape by then, with a weighted average rate of 15.5%

·       In that scenario, the Fed may go for a 50 bps cut each in 2026-27 instead of 25 bps as indicated in the latest dot plots

·       Powell mentioned the word ‘tariffs’ innumerable times in his presser and stressed the Fed acts on policy outlook, not on actual data, to stay ahead of the curve

·       As the US employment is now cooling, but still almost at maximum employment levels with slightly elevated inflation and higher potential Trumpflation, the Fed can afford to wait & watch

On Wednesday, June 18, 2025, apart from the ongoing Iran war suspense, some focus of the market was on the FOMC meeting, the Fed’s policy decisions, fresh SEP (summary of economic projections and dot-plots), and Chair Powell’s pressers. On Wednesday, as expected, the Fed holds all of its key policy rates unanimously. Fed kept unchanged target range for the Federal Fund's Rate (FFR-interbank rate-SOFR) to 4.38%% % (median of 4.50-4.25%); primary credit rate (repo rate) 4.50%; IOER (reverse repo rate) 4.40%; overnight repurchase (ONRP) agreement rate (ON RP) 4.50% and ONRRP (Overnight Reverse Repurchase Agreement Rate) to 4.25%. The Fed also kept the pace of QT for USTs at 5B/M officially.

On June 18, 2025, the Federal Open Market Committee (FOMC) concluded its two-day policy meeting, deciding to maintain the federal funds rate at a range of 4.25% to 4.5%. This marked the fourth consecutive meeting where rates were held steady, reflecting a cautious approach (wait & watch stance) amid economic uncertainties caused by President Trump’s tariff policy tantrum. The decision was widely anticipated by market analysts and economists, with the CME Fed Watch Tool indicating a 99.9% probability of no change.

The FOMC's statement and updated economic projections (SEP) highlighted concerns about rising inflation expectations, a weakening labor market, and geopolitical tensions, particularly between Iran and Israel. Although the FOMC projected two rate cuts by the end of 2025, with a median federal funds rate target of 3.90% (equivalent to a 3.75%–4.00% range). Federal Reserve Chair Jerome Powell emphasized the need for more clarity on inflation and unemployment data before further rate adjustments, citing potential inflationary pressures from proposed tariffs and global uncertainties.

Key FOMC Decisions: June 18, 2025

Interest Rates: The FOMC maintained the Federal funds rate at 4.25%–4.5% (FFR), unchanged since the December 2024 rate cut of 25 basis points. This decision aligns with the committee's ongoing strategy to monitor economic indicators closely before making further adjustments; the Fed is now in wait & watch mode for Trump’s uncertain tariff trajectory.

Balance Sheet: The FOMC made no changes to its balance sheet runoff (QT), continuing to reduce holdings of Treasury securities and agency debt and mortgage-backed securities (MBS) at a pace of $5 billion and $35 billion, respectively.

June Economic Projections: The FOMC's Summary of Economic Projections (SEP) revised key forecasts:

·       Real GDP Growth: Lowered to 1.4% for 2025, down from 1.7% in the March estimate, reflecting slower economic expansion (1.4% VS 1.7% for 2025; 1.6% vs 1.8% for 2026; 1.8% vs 1.8% for 2027; 1.8% vs 1.8% for 2028-longer run)

·       Inflation: Core Personal Consumption Expenditures (Core PCE) price index forecast increased to 3.1% for 2025, up from 2.8% in the March estimate, driven by concerns over potential tariff-related price increases (3.1% vs 2.8% for 2025; 2.4% vs 2.2% for 2026; 2.1% vs 2.0% for 2027; 2.0% vs 2.0%)

·       Unemployment: Slightly rose to 4.5% by December 2025, against a prior forecast of 4.4% indicating a weakening labor market (4.5% vs 4.4% for 2025; 4.5% vs 4.3% for 2026; 4.4% vs 4.3% for 2027; 4.2% vs 4.2% for 2028/longer run)

·       Federal Funds Rate (2025): The "dot plot" indicated a median rate of 3.9% by year-end, suggesting two 25-basis-point cuts in 2025, unchanged from March projections, but with seven of 19 members expecting no cuts this year, up from four in March

·       Federal Funds Rate (2026-28): In June’2025, FOMC projected a 25 bps cumulative rate cut each in 2026-2027 and a 50 bps rate cut in 2028 for a terminal rate of 3.0% by December’28. This is against earlier March’2025 projections of 50 bps cumulative rate cuts each 2026-27 for a terminal repo rate of 3.00% by December’27

·       Repo rate (Primary Credit Rate-PCR): 4.00% vs 4.00% by 2025; 3.75% vs 3.50% by 2026; 3.50% vs 3.00% by 2027; 3.00% vs 3.00% by 2028

Overall, it may be termed as a hawkish hold by the Fed in June’25

Fed now sees higher inflation, higher unemployment, and lower GDP growth for 2025; i.e., stagflation-like scenario. Fed also projected a 25 bps rate cut each in 2026-27 and pushed back 50 bps rate cuts to 2028. Fed is now projecting a 3.00% terminal repo rate by 2028 in its June dot plots against earlier March projections of 2027.  Overall, it’s a hawkish hold by the Fed in June’2025, although the Fed may again change its SEPs and dot-plots for 2026-27 in September’2025 projections if Trump takes definitive tariff plans by then.

Full text of Fed’s statement: June 18, 2025

Federal Reserve issues FOMC statement

“Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has diminished but remains elevated. The Committee is attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities, agency debt, and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures, inflation expectations, and financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Adriana D. Kugler; Alberto G. Musalem; Jeffrey R. Schmid; and Christopher J. Waller.”

Implementation Note issued June 18, 2025: Decisions Regarding Monetary Policy Implementation

Decisions Regarding Monetary Policy Implementation

The Federal Reserve has made the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its statement on June 18, 2025:

·       The Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on reserve balances at 4.4 percent, effective June 20, 2025.

As part of its policy decision, the Federal Open Market Committee voted to direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account by the following domestic policy directive: "Effective June 20, 2025, the Federal Open Market Committee directs the Desk to:

·       Undertake open market operations as necessary to maintain the federal funds rate in a target range of 4-1/4 to 4‑1/2 percent.

·       Conduct standing overnight repurchase agreement operations with a minimum bid rate of 4.5 percent and with an aggregate operation limit of $500 billion.

·       Conduct standing overnight reverse repurchase agreement operations at an offering rate of 4.25 percent and with a per‑counterparty limit of $160 billion per day.

·       Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $5 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.

·       Reinvest the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgage‑backed securities (MBS) received in each calendar month that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding.

·       Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons."

·       In a related action, the Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 4.5 percent.

Full text of Fed Chair Powell’s opening statement: June 18, 2025

“Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people.

 Despite elevated uncertainty, the economy is in a solid position. The unemployment rate remains low, and the labor market is at or near maximum employment. Inflation has come down a great deal but has been running somewhat above our 2 percent longer-run objective.

In support of our goals, today the Federal Open Market Committee decided to leave our policy interest rate unchanged. We believe that the current stance of monetary policy leaves us well-positioned to respond in a timely way to potential economic developments.

I will have more to say about monetary policy after briefly reviewing economic developments.

Following growth of 2.5 percent last year, GDP was reported to have edged down in the first quarter, reflecting swings in net exports that were driven by businesses bringing in imports ahead of potential tariffs. This unusual swing has complicated GDP measurement. Private domestic final purchases, or PDFP, as we call them, which excludes net exports, inventory investment, and government spending, grew at a solid 2.5 percent rate. Within PDFP, growth of consumer spending moderated while investment in equipment and intangibles rebounded from weakness in the fourth quarter.

 Surveys of households and businesses, however, report a decline in sentiment over recent months and elevated uncertainty about the economic outlook, largely reflecting trade policy concerns. It remains to be seen how these developments might affect future spending and investment.

In our Summary of Economic Projections, the median participant projects GDP to rise 1.4 percent this year and 1.6 percent next year, somewhat slower than projected in March. In the labor market, conditions have remained solid. Payroll job gains averaged 135 thousand per month over the past three months. The unemployment rate, at 4.2 percent, remains low and has stayed in a narrow range for the past year. Wage growth has continued to moderate while still outpacing inflation. Overall, a wide set of indicators suggests that conditions in the labor market are broadly in balance and consistent with maximum employment. The labor market is not a source of significant inflationary pressures.

The median projection for the unemployment rate in the SEP is 4.5 percent at the end of this year and next, a bit higher than projected in March. Inflation has eased significantly from its highs in mid-2022 but remains somewhat elevated relative to our 2 percent longer-run goal. Estimates based on the Consumer Price Index and other data indicate that total PCE prices rose 2.3 percent over the 12 months ending in May and that, excluding the volatile food and energy categories, core PCE prices rose 2.6 percent.

Near-term measures of inflation expectations have moved up over recent months, as reflected in both market- and survey-based measures. Respondents to surveys of consumers, businesses, and professional forecasters point to tariffs as the driving factor. Beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2 percent inflation goal. The median projection in the SEP for total PCE inflation this year is 3 percent, somewhat higher than projected in March. The median inflation projection falls to 2.4 percent in 2026 and 2.1 percent in 2027.

Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today’s meeting, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent and to continue reducing the size of our balance sheet. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks.

Changes to trade, immigration, fiscal, and regulatory policies continue to evolve, and their effects on the economy remain uncertain. The effects of tariffs will depend, among other things, on their ultimate level. Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined. Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity.

The effects on inflation could be short-lived, reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent. Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass through fully into prices, and, ultimately, on keeping longer-term inflation expectations well anchored.

We must keep longer-term inflation expectations well anchored to prevent a one-time increase in the price level from becoming an ongoing inflation problem. As we act to meet that obligation, we will balance our maximum employment and price-stability mandates, keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans.

We may find ourselves in a challenging scenario in which our dual-mandate goals are in tension. If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close. For the time being, we are well-positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.

In our SEP, FOMC participants wrote down their assessments of an appropriate path for the federal funds rate, based on what each participant judged to be the most likely scenario going forward. The median participant projects that the appropriate level of the federal funds rate will be 3.9 percent at the end of this year, the same as projected in March. The median projection declines to 3.6 percent at the end of next year and to 3.4 percent at the end of 2027, a little higher than the March projection. These individual forecasts are always subject to uncertainty, and, as I have noted, uncertainty is unusually elevated. And, of course, these projections are not a Committee plan or decision.

At this meeting, the Committee continued its discussions as part of our five-year review of our monetary policy framework. We focused on issues related to assessing the risks and uncertainties that are relevant to monetary policy and the potential implications for policy strategy and communications. Our review includes outreach and public events involving a wide range of parties, including Fed Listens events around the country and a research conference that we held last month. We are open to new ideas and critical feedback, and we will take on board the lessons of the last five years in determining our findings. We intend to wrap up any modifications to our Statement on Longer-Run Goals and Monetary Policy Strategy by late summer. After that, we will consider enhancements to our suite of communication tools, including the SEP.

The Fed has been assigned two goals for monetary policy: maximum employment and stable prices. We remain committed to supporting maximum employment, bringing inflation sustainably to our 2 percent goal, and keeping longer-term inflation expectations well anchored.

Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. We at the Fed will do everything we can to achieve our maximum employment and price stability goals. Thank you”

Highlights of Fed Chair Powell’s statements/comments in the Q&A: June 18, 2025

·       Will take confidence that inflation is coming down; without tariffs, that confidence would be building.

·       When asked if Americans should expect economic pain in the second half, I'm not saying that at all.

·       The labor market is not crying out for a rate cut.

·       Cutting back on survey sizes (manpower) will boost data volatility

·       Of course, the Fed is watching the Israel-Iran conflict. We possibly will see higher energy prices, but they don't generally tend to have lasting effects on inflation

·       I don't see increased slack in the labor market, except at the margin

·       A rate hike is not the base case.

·       We've had goods inflation moving up a bit, and we expect to see more of that

·       Although service inflation recently has ebbed, led by rental inflation, goods inflation is picking up

·       It takes some time to see goods inflation from tariffs move onto the consumer

·       Many, many companies do expect to put 'some or all' effects of tariffs onto the consumer

·       People generally expect inflation to move up and then come back down, but they can't assume that

·       Tariff uncertainty peaked in April and has come down

·       You can make a case for any of the rate paths you see in the SEP

·       No one holds rate path projections with a great deal of conviction

·       As we get more data, the differences in forecasts will be smaller

·       We expect a meaningful amount of inflation in the next few months

·       The economy is still solid, so we can take the time to see what will happen

·       We will make smarter decisions if we wait a couple of months or however long it's going to take

·       Labor supply is diminishing because of lower immigration, and demand is also falling as seen in fewer fresh job creations, and that's kept unemployment reasonably stable (balanced)

·       People are working their way through tariffs, and it feels much more positive and constructive

·       Affordable housing is a supply and fiscal issue rather than borrowing costs

·       4.2% is at the low end of estimates of the sustainable long-run unemployment rate

·       The US economy has defied all kinds of forecasts for it to weaken 

·       FOMC participants are writing down the most likely rate path, or the least unlikely path

·       Would want to keep investing in economic data collection for the good of the public

·       It helps businesses, helps them understand what's going on in the economy 

·       The US has been a leader in understanding and measuring our economy; I hate to see the Government cutting back

·       Fed framework should not depend on the Chair, nor be tied to a particular Chairman

·       Not concerned that we can't do our jobs with the data we have

·       Having really good data is a huge public good

·       The Fed is doing a careful scrub of fed and will find 10% of employees who can do something else. 

·       Staff reductions won't affect critical missions; we will do a lot of planning. 

·       We are effectively wiping out 10 years of headcount growth; we will hit

·       The labor market is not crying out for a rate cut 

·       Business people are working their way through this and feel more positive than they did 3 months ago. 

·       We are careful stewards of public resources, and sometimes we need to show that.

·       We know inflation is coming, but we don't know the size of it

·       We want to see that before we make judgments prematurely 

·       The policy must be forward-looking 

·       We cut rates to almost zero even before COVID hit us; we acted on the outlook; we knew what was coming and thus cut rates to almost zero without waiting, even if the inflation and employment equation was in balance.

·       We are waiting to understand what will happen with tariff inflation

·       The higher cost of the tariff has to be paid, between importers, exporters and some will fall on the end consumer; we have no definitive idea about how much and to what extent it will cause a higher cost of living for consumers, lower profitability for producers and overall impact on price stability and employment

·       Will take confidence that inflation is coming down; without tariffs, that confidence would be building

·       Hard to know how we should react until we see the size of the tariff effects

·       We will restore 2% inflation on a durable, sustainable basis 

·       The best thing the Fed can do is deliver price stability, full employment 

·       Have to keep rates high to get inflation all the way down

·       The policy is not very restrictive

·       In the fall will talk more in detail about changes to communications 

·       Would only implement communications changes that have broad support, improve clarity 

·       Compared to Sep-Dec 2024 when we cut rates, we forecasted 2.5% core PCE inflation for 2025, assuming a lower impact from tariffs; we didn’t anticipate much higher tariffs, which were announced in early April’25

·       The inflation forecast for the current year is for higher inflation due to tariffs

·       The economy has been resilient at almost near or at maximum employment, so we can afford to wait & watch to get tariff policy clarity and its potential impact on the economy before we move (cut) again

·       Not thinking about own future as Fed Governor after Chair term ends mid-2026

·       Split in economic projections may also reflect differences in assessments of risks

·       If you just look backward at the data, you would want rates closer to neutral, but we expect a meaningful amount of inflation in the coming months

·       Rate path (dot-plots) differences reflect the diversity of economic forecasts, including inflation

·       As we get more data, the differences in rate forecasts will be smaller

·       Need to see some actual data to make decisions

·       Had strong support for today's decision

·       Expect to learn a great deal more over the summer; at some point, it will become clear.  

·       Don't know where tariffs will settle out, highly uncertain

·       Know that the time will come when we'll have more confidence 

·       As long as we have the kind of strong labor market we have, and inflation is coming down, the right thing to do is to hold rates

·       Can perhaps see slow, continued cooling in the labor market, but nothing troubling 

·       No one (FOMC participant) holds rate path projections with a great deal of conviction; can make a case for any of the rate paths in the projections

·       Sentiment has come up from very low levels, though still depressed

·       The housing situation is a longer-run problem

Analysis of Fed Chair Powell’s FOMC Press Conference – June 18, 2025: Hawkish Hold Stance

Overall Tone and Context: Wait & Watch to gauge Trump’s policy impact on the economy

Powell’s remarks reflect a cautious yet cautiously optimistic outlook. He described the economy as “resilient” and expressed feeling “more positive than three months ago,” citing the U.S. economy’s ability to defy forecasts of weakening. The FOMC’s decision to hold rates steady at 4.50% was framed as appropriate, with policy in a “good place” to respond to incoming data. However, Powell emphasized significant uncertainties, particularly around tariffs and their inflationary impact, alongside a gradually cooling labor market. His data-dependent approach underscores the Fed’s reluctance to commit to a specific rate path, balancing progress on inflation with emerging risks.

Inflation: Powell acknowledged “three months of favorable inflation readings” and a decline in core services inflation, but noted that goods inflation is rising and expected to increase further due to tariffs. The core PCE inflation forecast for 2025 was raised to 3.1% from 2.8%, reflecting potential tariff-related pressures.

Uncertainty in Path: He cautioned that inflation may not smoothly return to the Fed’s 2% target, stating, “Can’t assume inflation will just move up and then back down as projections show.” Confidence in sustainable 2% inflation is not yet sufficient, particularly with tariff impacts looming.

Policy Goal: Restoring “durable and sustainable” 2% inflation remains central, with Powell emphasizing that price stability is the best contribution the Fed can make to the economy.

Tariffs: Powell highlighted that tariffs are beginning to affect prices, with “many companies expecting to pass some or all of tariff costs to consumers.” The full scope of tariff effects is “highly uncertain,” complicating the Fed’s forecasting process.

Policy Challenge: The Fed is adapting in real-time to estimate tariff impacts, but Powell admitted it’s “hard to know how the Fed should react until they see the size of tariff effects.” This uncertainty contributes to the higher near-term inflation forecast and the FOMC’s cautious stance.

Labor Market / Employment Stable but Cooling: The labor market is “slowly cooling” with unemployment at 4.2% (projected to reach 4.5% by late 2025), but Powell sees “no evidence of increased slack except at the margin.” Layoffs remain low, though those out of the workforce face challenges re-entering. Overall, the unemployment rate is stable at around 4.2% as both labor demand and supply are cooling due to a slowdown in new job creation and the ongoing exodus of immigrants.

No Urgency for Cuts: Powell’s comment that the labor market is “not crying out for a rate cut” suggests it remains a source of strength, supported by balanced supply and demand. This aligns with earlier data noting 696,000 layoffs through May 2025, an 80% year-over-year increase, but not yet alarming.

Data Dependency: Powell stressed a forward-looking, data-driven approach, noting that “no one holds rate paths with strong conviction.” The FOMC’s “dot plot” shows divergence, with seven of 19 members expecting no rate cuts in 2025, up from four in March, reflecting varied economic forecasts.

Cautious Patience: The decision to “wait a couple of months” for clearer data underscores the Fed’s preference for “smarter policy decisions” over premature action. Powell clarified that rate hikes are not the base case, and policy is now “modestly restrictive” rather than “very restrictive.”

Future Cuts: While two 25-basis-point cuts are projected by year-end (median rate of 3.9%), Powell avoided committing to a timeline, with markets pricing a 60%–70 % chance of a cut by September’25 and almost 80% for October’25.

Economic Growth, Resilience and Outperforming Expectations: Powell highlighted the economy’s resilience, noting it has “continued to surprise forecasters” and is supported by the Fed’s current stance. The revised 2025 GDP growth forecast of 1.4% (down from 1.7%) reflects caution but not pessimism.

Improving sentiment and easing uncertainty: Business sentiment has improved from low levels, and Powell’s more positive tone compared to three months ago aligns with reduced uncertainty since April 2025. Powell noted that economic uncertainty, which peaked in April, has declined, as reflected in adjusted FOMC statement language. However, he tempered expectations, stating that full confidence in the economic path will take time.

Balanced Messaging: The improved sentiment and reduced uncertainty provide a backdrop for the Fed’s steady policy, but Powell avoided overconfidence, emphasizing ongoing monitoring.

Data Reliability Critical for Policy: Powell underscored the importance of reliable economic data, calling it a “huge public good” for policymakers and businesses. While current data is sufficient for the Fed’s work, he expressed concern about any potential decline in data quality, given the U.S.’s leadership in economic measurement.

Housing: Powell acknowledged the housing market’s “longer-run problem” due to shortages and high interest rates, but offered no immediate policy solutions as it’s a fiscal policy issue.

Political Neutrality: Powell distanced the Fed from political discussions, including Trump’s evolving “big & beautiful bill,” and rejected suggestions that Americans should expect economic pain in the second half of 2025.

Implications: The Fed’s cautious stance, with no immediate rate cuts planned at least till September’25, reflects a balancing act between tariff inflation risks and labor market stability. The focus on tariffs as an inflationary wildcard suggests the Fed will remain vigilant, potentially delaying cuts until September or later.

Economic Outlook: The economy’s resilience supports the Fed’s steady policy, but tariff-driven inflation and a cooling labor market pose risks. Powell’s optimism is tempered by the need for more data, particularly on tariff impacts and unemployment trends.

Conclusions

Fed may cut in September/October 2025 and December 2025 by @25 bps each.

Fed may act in September/October’25 and December’25, depending upon Trump’s implemented tariffs and the overall US economic situation. Fed may maintain wait & watch stance till August’2025, as by then Trump’s tariff policies may take a potential clear shape of a 10% basic/universal rate with some sectoral tariffs ranging from 25% to 50%. Even if Trump makes a final decision of a 10% ‘smaller’ tariff, including that on China by early July-August (along with sectoral tariffs), the Fed needs time to evaluate the weighted average cost of tariffs on the economy and thus may act only from September 2025.

Trump is now too busy with the Iran war and may extend his reciprocal tariffs pause from July-August to December’25 to ensure no supply shock for the US economy. Trump may continue his chaotic tariff policy to get a fair trade deal for the US. If Trump goes on with his higher reciprocal tariffs, it would cause a supply shock and a higher cost of living for ordinary Americans, most of whom live on a pay check to paycheck-to-paycheck basis. Further, such tariffs would cause a demand shock in the future and an all-out recession. This will also cause a loss of Vote Bank (ordinary Americans) and Note Bank (political funding by corporate America) for Trump and Republicans. Thus, Trump is bound to blink and may take a less hawkish tariff position in the coming days.

Fed may be waiting & watching stance till mid-September 2025, as by then Trump’s tariff policies may take a potential clear shape of a 10% basic/universal rate with some sectoral tariffs ranging from 25% to 50%. Even if Trump makes a final decision of a 10% ‘smaller’ tariff, including that on China by early July (along with sectoral tariffs), the Fed needs time to evaluate the weighted average cost of tariffs on the economy and thus may act only from September 2025.

Fed may also be assuming 15.5%-25.5% weighted average US tariffs as the best base case vs 2.5% pre-Trump 2.0. Fed is assuming equal distribution of Trump tariffs burden @1/3rd each on US consumers,  importers, and also exporters, in which case core CPI inflation may be boosted by 0.5-1.0% from present average levels of 3.0%, and unemployment will be higher by 0.5-1.0% from present average 4.0%. At present, as the US economy is solid in terms of overall economic activities, stable prices and employment, the Fed can afford to wait & watch to gauze the likely impact of Trump’s policies on US price stability/inflation and also employment; Fed works on potential economic outlook, not actual data to stay ahead of the curve.

Bottom line: Summary

Trump may stick to his flip-flop (bullying) negotiation tactics to get better tariff deals for the US, and he may continue this back & forth on tariffs till at least December 2025. But even then Fed may cut 25 bps each in September/October and December’25. Looking ahead, if, by early 2026, Trump’s tariff policy does get clarity, then the Fed may modify its dot-plots in March’26 SEP and go for a 50 bps rate cut each in 2026-27 for a terminal rate of 3.00% by Dec’27 instead of Dec’28.

But 15.5% weighted average Trump tariffs effective from Q2CY25 may boost US inflation from Q2/Q3CY25 onwards. The Trump admin also knows this fact and thus is now pressuring the Fed to go for a crisis-era rate cut of 100-200 bps at a time or within a short span. By pressuring the Fed, US President Trump is complicating the Fed’s job more and also hurting the future credibility of the Fed as an independent institution. This may hurt the USD's credibility as a global reserve currency in the future, and the US may be losing the advantage of its greatest weapon, the USD hegemony, which it uses for geopolitical influence and becoming the number one superpower in the world.

Market impact

Wall Street Futures were almost flat, but the USD recovered from the initial knee-jerk downward reaction, while Gold stumbled on a hawkish hold by the Fed as it projected a slower rate-cut trajectory in 2026-27, which is seen as a hawkish hold. But the market is now dancing to Trump’s Iran tune. On early Thursday, Wall Street Futures slipped on lingering Iran war uncertainty; Gold recovered to some extent in a holiday-thinned trade.

Technical outlook: DJ-30, NQ-100, Gold and Silver

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 42600) now has to sustain over 42900 for a further rally towards 43200/43600*-44000/45300 in the coming days; otherwise sustaining below 42800, DJ-30 may again fall to 41900/41700-41400/41000* and further 40600/40100-39200/38000 in the coming days.

Similarly, NQ-100 Future (21600) has to sustain over 22000 for a further rally to 22400/22500-22700/23000 in the coming days; otherwise, sustaining below 21900, NQ-100 may again fall to 21900/20900-20700/20200 and 19890/18300-17400/16400in the coming days.

Technically Gold (CMP: 3350) has to sustain over 3375-3395 for a further rally to 3405/3425*-3450/3505*, and even 3525/3555 in the coming days; otherwise sustaining below 3365, Gold may again fall to 3340/3320-3300/3280 and 3255/3225-3200/3165* and further to 3130/3115*-3075/3015-2990/2975-2960*/2900* and 2800/2750 in the coming days.

Also, technically, Silver (CMP: 36.50) has to sustain over 38.00 for a further rally to 40.00/45.00-49.00/50.00 in the coming days; otherwise, sustaining below 37.00, Silver may again fall to 36.00/34.50-32.00/31.50 and 31.00-30.50 in the coming days.

Also, technically, Silver (CMP: 36.50) has to sustain over 38.00 for a further rally to 40.00/45.00-49.00/50.00 in the coming days; otherwise, sustaining below 37.00, Silver may again fall to 36.00/34.50-32.00/31.50 and 31.00-30.50 in the coming days.