Not much moved me about Chairman Powell’s testimony this week …

Jerome Powell, chairman of the Board of Governors of the Federal Reserve System wrapped up his semi-annual visit to Capitol Hill basically saying all is well with the Fed’s implementation of monetary policy. Chairman Powell assured both the House yesterday and the Senate today that the labor market was at or near maximum employment although inflation was somewhat elevated.

Tariffs have been knocked from their number one geopolitical hotspot by the Israel-Iran conflict, the Russia-Ukraine war, and Israel’s police action in Gaza. Since Liberation Day last April tariffs have been the default blame for everything currently wrong and that will be wrong in the future about the economy. Chairman Powell, while not exactly piling on the low-hanging fruit wagon of tariffs, did note that tariffs are likely to push up prices and weigh on economic activity.

Chairman Powell further noted that effects on inflation brought on by tariffs may reflect a one-time shift in prices. Avoiding a one-time shift will depend, according to the Chairman, on the size of the tariffs’ effects, how long it will take the effects to pass through fully into prices, and whether monetary policy is effective enough to keep anchored the expectations of longer-term inflation.

That sounds good from an economic policy perspective, but politically, an inability to limit long-term expectations on inflation will have consequences with the electorate/taxpayer. The impact of tariffs have not been incorporated into prices yet but imagine Frank and Ida seeing the price of coffee, olive oil, and avocados getting hit by tariffs. That one-time shift could drag out where Frank and Ida’s incomes do not increase to match the price increases. (And as an avid coffee drinker who cooks with olive oil, I would feel that, too.)

Not only was I not moved by Chairman Powell’s testimony, but foreign exchange markets appeared unfazed. At 8:24 am this morning, the EUR/USD was 1.15991. The dollar continued its weakening trend with the price of the currency pair climbing to 1.16227 at 11:09 am this morning. By 4:21 pm, the EUR/USD was at 1.16555.

Earlier this week, I calculated a forward contract price for this Friday of 1.1758 an exchange rate in keeping with the trend of US dollar weakness. Reuters cited a report by JP Morgan where the bank expects the US dollar to continue being bearish through the rest of the year. The reason? Slower growth in the U.S. relative to growth in other countries with more growth supporting policies.

In addition, fed funds futures traders are pricing in between now and the end of the year 62 basis points of cuts by the Federal Reserve to its federal funds rate, the overnight rate that banks charge each other for lending their reserves. In addition, JP Morgan expects another 100 basis points of cuts to the fed funds rate between the end of 2025 and spring 2026. If these expectations come to fruition, expect the fed funds rate to be around 2.70 next summer.

With lowered rates comes a weakened dollar, a scenario that Mr. Trump wants. A weakened dollar would make goods manufactured here in the U.S. attractive to consumers overseas. The political irony is the weakened dollar may come about under the watch of the Fed chairman who Mr. Trump is more than willing to replace for, ironically, not giving him sooner the lowered rates he has been seeking.

Alton Drew

25 June 2025

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DISCLAIMER: I am not a financial adviser. These blog posts are for educational purposes only. Trading of any kind involves risk. Your trading decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary.

LEGAL ANALYSIS: For an analysis of the legal or regulatory environment surrounding the events described in this post, contact me at altondrew@altondrew.com to set an appointment.