Chart of the Week: Is a US rate cut around the corner?

US inflation and interest rates have been under constant scrutiny over the last few months. Sometimes subtly and at other times more overtly, the Trump administration has been pushing Fed chairman Jerome Powell to deliver a rate cut since the President took office in January. So far, Mr Powell has managed to ignore this mounting pressure, with the policy rate remaining fixed at 4.5%. One argument made by the administration is that the Fed delivered multiple rate cuts before the election — including one by 50 basis points in September 2024, at a time when inflation was higher than it is now and in an upwards trajectory. However, those cuts were made in the context of spiking unemployment rates in the middle of 2024 which suggested a looming recession. Importantly, the current outlook includes the threat of inflationary pressures arising from US tariffs, something that the Fed chairman has repeatedly pointed to in his defence of keeping rates unchanged. In Fathom’s recent Global Outlook, Summer 2025, we see inflation rising by around one per cent this year as the effects from tariffs kick in. Given the unusually high level of uncertainty around the economic outlook, the Fed is probably erring on the side of caution by keeping rates steady. But this will be a key dynamic to keep an eye on as June’s inflation data are released on 15 July.

Refresh this chart in your browser | Edit the chart in Datastream

The views expressed in this article are the views of the author, not necessarily those of LSEG.

______________________________________________________________________________________