Jerome Powell just confirmed what markets already suspected. The Federal Reserve would have cut rates by now if it weren’t for the tariff barrage coming out of the White House. That’s not speculation. That’s Powell’s own words. Inflation forecasts jumped after Trump’s tariff plan hit the tape. The Fed froze. The rate path changed. And the dollar took the hit.
The Fed’s benchmark rate has been stuck between 4.25% and 4.5% since December. Two cuts were penciled in for 2025. Neither happened. Powell said it clearly during the ECB forum in Sintra: “We went on hold when we saw the size of the tariffs.” That’s not a hedge. That’s a direct admission. The central bank paused because fiscal policy lit a fire under inflation models.
The dollar is bleeding. Down 10.8% year to date. That’s the worst first-half performance since 1973. The DXY index dropped from 110 to under 97. The euro is at 1.17. The pound is at 1.37. The yen gained 9%. This isn’t a currency correction. It’s a repricing of U.S. credibility. The selloff started in April when Trump announced reciprocal tariffs on dozens of trade partners. Then came the 90-day pause. Then the threats. Then the walk-backs. The market stopped trusting the signal.
The CBO now projects a $3.3 trillion deficit increase over the next decade from Trump’s “One Big Beautiful Bill.” That’s layered on top of a $36.2 trillion national debt. The OECD cut U.S. growth forecasts from 2.2% to 1.6%. Retail spending has been flat for five straight months. Treasury auctions are soft. Foreign demand is thinning. The dollar is no longer the safe haven. It’s the risk.
Powell is boxed in. Cut rates now and risk validating inflation. Hold steady and risk choking growth. The Fed is waiting for the July CPI print. That’s when the tariff impact is expected to show up in the data. Powell said it himself. “We think we should see [higher prices] over the summer.” If inflation doesn’t spike, the door opens. If it does, the Fed stays frozen.
Trump wants rates down. He’s said it publicly. He’s called Powell “Too Late.” He’s floated replacing him early. The pressure is real. But the Fed is holding the line. For now.
The dollar’s collapse is not just about rates. It’s about trust. Investors are watching a government that’s adding debt, threatening the Fed, and rewriting trade policy on the fly. That’s not a stable backdrop. That’s a warning.
Sources
https://finance.yahoo.com/news/trump-triggers-dollar-worst-start-053000414.html