Will Fed signal imminent rate cuts after Trump-Powell drama?

 

·         On July 30, the Fed may go for a dovish hold with a clear signal of the start of rate cuts @25 bps every other meeting from September’25

·         The Fed may also announce the QT ending plan for September for TSY bonds and tapered rebalancing of MBS QT with TSY QE (long term)

·         But Trump may press for a 50 or even 100 bps rate cut in September ’25 as he has to rollover over $9T debt (TSY) at lower borrowing costs.

·         And continuing insult of Fed Chair Powell by President Trump and his admin/allies over monetary policies and HQ renovation controversy may force Powell to resign early.

·         Powell may resign after the July meeting; even some of his colleagues may also do the same in a show of solidarity and Fed independence & credibility.

·         If such a Fed resignation happens, it would be a doomsday for the US and the global financial market.

On July 24, 2025, in an unprecedented drama, President Trump visited the Federal Reserve (Fed) headquarters (HQ) in Washington, D.C., to inspect the controversial $2.5 billion renovation project, escalating his ongoing feud with Fed Chair Powell. During the visit, Trump and Powell, both wearing hard hats, publicly disagreed over the project's cost. Trump dramatically claimed the renovations had ballooned to $3.1 billion, showing a document from his pocket, while

Powell refuted this, stating the figure included costs from a separate building, the William McChesney Martin Building, renovated five years prior under the previous administration, i.e., Trump 1.0. Powell clarified the current project’s cost remains at $2.5 billion, up from an initial $1.9 billion due to inflation, material costs, and the need for asbestos and lead remediation in the historic 100-year-old Marriner S. Eccles and 1951 Constitution Avenue buildings. Trump virtually blinked and pointed out that, whatever may be the cost of the current Fed HQ renovation, he will help to finish it ASAP, and he also stressed a quicker Fed rate cuts for the same as virtually a precondition.

Trump used the Fed HQ renovation project visit to intensify pressure on Powell, primarily over the Fed’s refusal to lower interest rates, which Trump has repeatedly demanded to stimulate economic growth, ensuring lower borrowing costs for government, business and personal, especially for mortgage loans.

Trump has criticized ‘stupid’ Powell, calling him names like “numbskull” and “too late,” and previously floated firing him, though legal experts note a Fed chair can only be removed “for cause,” such as misconduct, corruption charges, and any attempt would likely face legal challenges and market turmoil. During the visit, Trump backed off firing threats, stating, “I don’t think it’s necessary,” and expressed hope Powell would “do the right thing” by lowering rates. He described their interest rate discussion as “productive” but avoided his usual personal insults.

The   Fed HQ renovation project has become a focal point for Trump’s administration, with officials like Office of Management and Budget Director (OMBD) Russell Vought and Federal Housing Finance Agency Director (FHFA) Bill Pulte having launched an unprecedented personal attack on Powell, alleging mismanagement or fraud, potentially as a pretext for ousting Powell. Vought previously accused Powell of misleading Congress about the project’s scope, claims Powell denied, pointing to a Fed FAQ page clarifying that no lavish features like VIP dining rooms or rooftop terraces were included. Ironically, the Fed HQ renovation project, approved in 2017 under Trump 1.0, involves modernizing aging infrastructure, with costs rising due to historic preservation needs and market-driven material price increases.

Trump’s visit, the first by a president since 2006, was joined by allies like Senators Tim Scott and Thom Tillis, Vought, and Pulte, signaling a coordinated effort to scrutinize Powell’s leadership. While Trump claimed he wanted to see the project completed, he reiterated his call for lower interest rates, aligning with his broader economic agenda, though Powell has indicated rates will likely remain steady at 4.25%-4.50% at the Fed’s upcoming meeting due to inflation concerns, partly tied to Trump’s unpredictable and constant back-and-forth tariff policies.

On July 24, before going for a Fed HQ visit, Trump posted in his Truth: “Getting ready to head over to the Fed to look at their, now, 3.1 Billion Dollar (PLUS!) construction project. Also present will be Fed Chair Jerome Powell, Senator Tim Scott, Senator Thom Tillis, OMB Director Russ Vought, Chairman of Fannie Mae and Freddie Mac, Bill Pulte, my Appointees to the National Capital Planning Commission, James Blair and Will Scharf, and various other construction professionals.”

After the Fed HQ visit, Trump again Truthed: “It was a Great Honor to tour the Renovation (and some new Construction!) of the Federal Reserve Building with Chairman Jerome Powell, Senator Tim Scott, and others. It’s got a long way to go, would have been much better if it had never started, but it is what it is and, hopefully, it will be finished ASAP. The cost overruns are substantial but, on the positive side, our Country is doing very well and can afford just about anything — Even the cost of this building! I’ll be watching and, hopefully, adding some expertise. As everyone knows, I renovated the Old Post Office on Pennsylvania Avenue, and it was a roaring SUCCESS. The total Construction cost was a small fraction of the Fed Building’s cost, and it is many times the size. With all of that being said, let’s just get it finished and, even more importantly, LOWER INTEREST RATES!”

Highlights of Trump’s comments and visual action-packed drama at Fed HQ: July 24, 2025

·         Trump arrives at the Federal Reserve building

·         Trump was seen walking with Powell during the Fed tour

·         Tough construction job

·         A lot of very expensive work at the Fed building

·         Looks like Fed building costs went up a lot

·         Trump shows Powell a piece of paper about building costs

·         Trump on Fed renovations: Too bad it started

·         Briefed Powell on the Japan trade deal

·         Trump asked about taking back Powell's criticism: I want rates lower

·         We're doing well with the EU

·         We'll see how the Fed board rules on interest rates

·         Trump on Fed Tour: We looked around. They have to finish it

·         Interest rates have to be lower

·         We should have the lowest interest rates of any nation

·         I want rates down, and the Fed building finished

·         Very good Fed tour

·         We sort of understand what happened

·         We have to get housing prices down and interest rates down

·         Europe wants to make a deal very badly

·         We'd do better if we had lower interest rates

·         We're in the process of making a deal with Europe

·         Trump reiterates interest in 3-point interest rate cut

·         I talked with Powell about rates

·         Powell's discussion was very productive

·         Powell told me the country is doing well

·         Trump on talk with Powell: thought it was a good meeting, no tension

·         Powell had more tension with Senator Scott

·         Trump on whether he thinks the Fed's cost overruns could be grounds to remove Powell: I don’t want to put that in this category. The costs got out of control, and that happens.

·         Trump on firing Powell: That would be a big move, and I don't think it's necessary

·         I believe Powell will do the right thing

·         I have two to three names in mind to replace Powell-- maybe three

·         No pressure for Powell to resign

On July 25, Trump said before leaving the White House for his weekend Scotland/UK/EU trade deal tour:

·         50-50 chance of making a deal with the EU

·         Trump on Fed's Powell: Got the impression yesterday from Powell that he might be ready to lower rates

·         Trump on US Dollar: Will never say wants weak currency

·         Trump On Trade: Most deals will be done by August 1

·         We have the confines of a deal with China

·         Will have most deals done by August 1st, if not, all

·         Trump on Canada Trade: There could just be a tariff, not negotiation

·         Some of the deals will be done by letter

·         All China does is fight for a weak currency

·         Powell is a very good man

·         Tariff letters are going out by Friday

·         I am mulling a rebate check for low-income Americans

·         With a strong dollar, we can't sell anything

·         Still want a strong Dollar

·         We are nearing a trade deal with China

·         I think Powell will lower interest rates

·         Powell told me the economy is doing well (running hot)

·         Japan wants to have a weak currency

·         I had so many different fights with China’s President Xi

·         I have nothing to do with Epstein

·         I have the right to take over DC

·         China and Japan dominated because of their weak currencies

·         A lower dollar makes the tariffs worth more

·         Trump on Russia: We're looking at secondary sanctions, we may have to

·         The EU may have to buy down its tariffs

·         Trump on UK Trade: There is not a lot of wiggle room on steel and aluminum

·         Most of the trade deals are finished right now

·         Most of the deals are letters instructing tariff rates. Some letters will say 10%, 15% tariff rate

·         On steel tariff: If I cut for one, I will have to do it for all

·         I haven't had a lot of luck with Canada. I may impose a unilateral tariff rate on Canada. There's not a lot of negotiating, and I am not focused on a deal with Canada.

·         I would use tariff money for rebates to Americans.

·         Australia is to take US beef for the first time. A very big market. I hope our great farmers are happy.

Trump Truthed after Australia resumed US beef imports as a part of ongoing trade deal talks:

After many years, Australia has agreed to accept American Beef! For a long time, and even though we are great friends, they banned our Beef. Now, we are going to sell so much to Australia because this is undeniable and irrefutable Proof that U.S. Beef is the Safest and Best in the entire World. The other Countries that refuse our magnificent Beef are ON NOTICE. All of our Nation’s Ranchers, who are some of the hardest-working and most wonderful people, are smiling today, which means I am smiling too. Let’s keep the Hot Streak going. IT’S THE GOLDEN AGE OF AMERICA!”

The OMDB Director Vought:

·         Had a great visit to the Fed building

·         Sees interest rates need to decrease

·         On Fed Renovations: Things could have been done better

·         wants fed renovation to be done cheaply

·         We still have questions about Fed renovations

·         Questions were not fulfilled on the Fed tour

·         After the tour, I have a better sense of what is going on

·         Powell, Trump had good discussions on the tour

White House aide James Blair:

·         Cost overrun at Fed building is 'massive'

·         We are at this point

·         Trump 'not thinking’ about firing Powell at the moment

·         Credit Card Interest Rates Are Too High

·         Tariff plan transparent, money coming in to us

FHFA Director Pulte:

·         Reiterates that the Federal Reserve should lower rates

On July 24, the US Treasury Secretary Bessent said:

·         Other Fed operations might impact monetary independence

·         Fed's footprint has become too big

·         The Fed has undue influence on the economy

·         The Fed should get back to the basics

·         Countries are willing to pay a toll to trade with the US

·         The US is in a pretty good place with China on trade

·         I will talk to China about them buying sanctioned oil from Russia and Iran

Will Fed Chair Powell announce resignation soon after the July meeting?

Overall, the Trump admin is now pressuring not only Fed Chair Powell, but also indirectly targeting some ‘left-leaning Liberal Socialist Democrats’ Fed officials in the FOMC/ Fed board for an immediate start of rate cuts. Trump even wants 3% rate cuts at a time or within December’25 to lower increasing borrowing costs for public and also private debt to encourage private investments and mortgage loans.

But despite the market being well aware of the Fed’s potential rate cuts of 50 bps in H2CY25 and 100 bps each in 2026-27, the 10Y bond yield is continuously hovering around 4.50% on average, at the Fed’s repo rate and 1Y inflation expectations amid Trump’s tariff tantrum and unpredictable policies. Also mortgage rate is comparatively elevated even after the Fed’s unexpected 100-bps rate cuts in September-December’24. This may be because of accelerated MBS QT and the Fed’s long-term plan to exclude MBS from the balance sheet and to replace it with TSY bonds only. The Trump admin and advisors are now thinking of allowing inflation to run over normal 2% targets if overall economic productivity runs above 3-4% on average.

Trump also thinks the job of the Fed’s Chair is very easy, just show up in the office once or twice a month, flip the coin and go for rate holds, or cuts/hikes. Trump thinks overall Fed expenses with so much manpower, economists, etc, are a simple wastage of taxpayer money (Federal funds) and thus it should be streamlined; Fed should be lean & thin. Trump’s overall attitude is that he would be better as Fed Chair than Powell. Trump appointed Powell as Fed Chair during his 1^st term in 2018 after a series of melodrama with various other potential candidates including the then Fed Chair Yellen. But despite that, Trump now often regrets appointing ‘numbskull stupid’ Powell as Fed Chair and also the extension of Fed Chair Powell by Biden.

Political pressures on the Fed to lower interest rates to fund increasing deficit spending at lower borrowing costs are nothing new. Many US Presidents have done that in the past directly or indirectly. Fed is quite habituated in that. But Trump’s style of Powell tantrum and publicly insulting him almost 24/7 is quite unprecedented.

Trump sounded less hawkish on Powell after his ‘private talks’ at the HQ renovation project. Powell may have indicated him for a dovish hold on July 30 with an indication of rate cuts from September’25 onwards. Fed may also officially close the TSY QT of $5B/month and reduce the MBS QT rate from official $35B/M to $15T/M from September’25 and then reduce it to further $5T/M and replace it with $5T/M TSY QE (buying/refilling) for next several years as a longer term Fed Balance Sheet rebalancing strategy.

In summary, on July 24, after the public live national television/digital media drama over the Fed’s HQ renovation project, Trump sounded less hawkish on Powell after Powell confronted Trump publicly about his misinformation regarding the overall HQ renovation project cost. But Trump was satisfied that he was able to ‘drag’ Powell out of his office and demonstrate his leadership and dominating nature, always being in the limelight.

Conclusions:

Powell’s body language indicated he is not in the mood to obey a dictatorial-like attitude by Trump. Thus, although Powell/Fed may goes for a dovish hold on July 30, Powell and even some of his colleagues may also announce official intention of resignation either from September or December’25 in protest against Trump’s unusual way of insulting Fed Chair and also repeated attempts to undermine the independence & credibility of Federal Reserve by a sitting US President.

Apart from Fed Chair Powell, some of his colleagues may also announce their resignation in a stance of solidarity with Chair Powell. Trump is insulting not only Powell personally, but also the Fed Chair and virtually the Fed Board/FOMC and even other regional Fed Presidents (FOMC voters/participants).  If this happens, it would be ‘black swan’ day for the US and the global financial market.

Short-term Technical analysis/outlook: USDJPY, EURUSD, and GBPUSD

Looking ahead, whatever may be the narrative, technically USDJPY (147.75), now has to sustain above 148.50 for 149.75/150.50-151.00/151.50 and then only sustaining above 151.50, may further rally towards 153.25/155.75-157.00/159.25 and 160.00-161.50 in the coming days; otherwise, on the flip side, sustaining below 148.00, USDJPY may again come down to 146.35/144.50-142.50/139.50 in the coming days.

Looking ahead, whatever may be the narrative, technically EURUSD (1.17400), now has to sustain over 1.18500-1.19000 for a further rally to 1.20000*/1.21000-1.24000/1.24500 and 1.25000 in the coming days; otherwise sustai8ning below 1.1800-1.16800, EURUSD may again fall to 1.15700/1.14100* and only sustaining below 1.14000, it may further fall to 1.12100/1.11500-1.10600/1.09700 and 1.09400*/1.08200-1.07000/1.05700/1.04000 and even 1.01800 (under US-EU failed trade deal scenario).

Looking ahead, whatever may be the narrative, technically GBPUSD (1.34300), now has to sustain over 1.33400 for a recovery to 1.36000-1.37800* and only after sustaining over 1.38000, i8t may further rally towards 1.4000/1.42200-1.43200/1.45000 in the coming days; otherwise, sustaining below 1.34100-1.34000, GBPUSD may further fall to 1.32500/1.31500-1.31000/1.30400 and 1.29800*/1.29200-1.27700/1.26700 and 1.26000/1.24000-1.21000/1.20000 in the coming days.