The monetary policy game in a "tariff storm".

"If not for the new round of tariffs, we might have cut interest rates once or twice"—Powell's candid remarks at the Congressional hearing directly pointed to the Trump administration's trade policies as the reason for the Federal Reserve's inaction. This statement, which has been dubbed as "Powell's rebuke to the White House" by the media, not only reveals the deep-seated contradictions between inflation and political pressure but also sends a signal that September may be a critical turning point for policy.

1. Policy stance: The art of waiting and the conditions for interest rate cuts
1. The Three Pillars of a Wait-and-See Strategy
Data dependency principle: Powell emphasized repeatedly that before the July meeting, it is necessary to observe the June inflation data (to be released on July 15) and changes in the labor market, refusing to commit to any action at any specific time.

Tariff transmission assessment: the speed of cost pass-through for enterprises is the core variable. If tariffs only cause a "one-time price increase" (such as short-term fluctuations after inventory digestion), the probability of a rate cut in September will increase sharply; if it leads to "persistent inflation" (such as supply chain reorganization driving up long-term costs), interest rates may remain until the end of the year.

Dual Mission Balancing Act: Currently prioritizing inflation expectations, but clearly stating that "if the unemployment rate deteriorates significantly, it will trigger interest rate cuts", leaving room for policy flexibility.

2. Divergence in interest rate paths: July is out of the question, September becomes the focus
Internal factionalization:

Doves (Waller, Bowman): Advocate for a rate cut in July, believing that tariffs have a limited impact on prices, and that delaying action may exacerbate unemployment risks.

Hawkish (Barkin et al.): Insist on holding steady until inflation meets the target, and be wary of demand overheating amplifying tariff transmission.

Market Pricing Verification: CME FedWatch shows that the probability of a rate cut in July is only 16.5%-18.6%, while the probability for September has soared to 66%-87%, reflecting the market consensus on the "data observation period."

2. Economic Diagnosis: Dual Fractures Beneath the Surface of Resilience
1. Inflation: The risk of "secondary rise" under the shadow of tariffs
Current status: Core PCE inflation rate is 2.6% (May data), still above the 2% target. Short-term inflation expectations are boosted by tariffs, but long-term expectations remain anchored.

Controversy over the conduction mechanism:

The White House claims: the cost of tariffs is borne by trade partners, and American consumers are not affected.

Federal Reserve empirical evidence: Companies have reported supply chain disruptions (such as shortages of auto parts), and cost pressures will ultimately be passed on to the retail end. Powell warned: "Some tariff costs will be borne by the public."

2. Growth: Collapse of Resilience and Confidence in Domestic Demand
GDP Fog: In the first quarter, GDP declined due to disruptions from enterprises "rushing imports", but private domestic demand (PDFP) grew by 2.5%, revealing real consumption resilience.

Crisis of confidence: CEOs of companies are generally worried about policy uncertainty, especially as the manufacturing sector faces a long-term pain of "supply chain restructuring needing several years," which may suppress investment.

3. Employment: The "time bomb" of youth unemployment
Surface Prosperity: Unemployment rate at 4.2%, wage growth exceeding inflation, in line with "maximum employment".

Hidden risks: Powell rarely mentions the high youth unemployment rate. If combined with tariff impacts on corporate hiring, it may lead to a deterioration in structural unemployment, becoming a key trigger for interest rate cuts.

3. Political Game: The Offensive and Defensive Battle of Independence and Pressure from the White House
1. Trump's "Rate Cut Sniper"
Openly criticizing Powell as "stupid," calling for an immediate 3 percentage point rate cut, and even urging Congress to "teach" the Federal Reserve a lesson.

Political logic: Economic stimulation is needed before the election, and lowering interest rates can alleviate the pressure of fiscal expansion and boost asset prices.

2. The Federal Reserve's "Institutional Counterattack"
Legal Shield: Powell emphasized that "the independence of the Federal Reserve is granted by congressional legislation, and the chairman's term is protected by law," indirectly responding to Trump's "threat to dismiss."

Mission Statement: "Price stability is the prerequisite for sustained strong employment," elevating the policy stance to the level of national economic security.

IV. Market Impact: Asset Price Reconstruction and September Layout
1. Short-term Volatility Logic
US Dollar Strengthens: Delayed Rate Cut Expectations Push DXY Close to 98.0, Non-USD Currencies Under Pressure;

Gold Pullback: Safe-haven attributes yield to interest rate expectations, gold price falls below $3310/oz.

US stocks showed resilience: despite a decline ahead of the hearing, they ultimately rose by more than 1%, reflecting market acceptance of a "flexible interest rate cut" pathway.

2. Mid-term trading main line
September betting: If the inflation data for July and August is moderate (especially if the tariff transmission is weaker than expected), interest rate-sensitive assets (tech stocks, US Treasuries) will welcome a rebound window;

Stagflation hedge: energy, industrial metals, or those benefiting from supply contraction caused by tariffs, but be wary of the risk of demand collapse.

Core conclusion: A race against time
Powell's testimony is essentially a policy declaration of "retreat to advance:"

"Hawkish stance" defends anti-inflation credibility → "Dovish retreat" reserves economic rescue channel

Three major observation dimensions for the next 60 days:

Inflation transmission speed: Are companies' pricing strategies aggressive in the third quarter?

Youth Employment Data: Has the unemployment rate of recent graduates exceeded the threshold?

The White House game escalates: Will Trump use executive measures to apply pressure?

If inflation does not spiral out of control before August, a rate cut in September will serve as the "olive branch" extended by the Federal Reserve to the market—both alleviating economic pressure and signaling its decision-making will independent of politics.