The case for a U.S. interest rate cut remains unresolved as Federal Reserve officials head into their policy meeting later this month, with data showing fresh signs of higher inflation and President Donald Trump intensifying his demands for lower borrowing costs.

Trump appeared near the point of trying to fire Fed Chair Jerome Powell this week, but backed off with a nod to the market disruption that would likely follow, and the U.S. central bank's policy rate outlook remains virtually unchanged despite the drama.

Fed officials haven't mentioned raising rates, but headlines about an imminent Powell firing caused U.S. Treasury yields to jump, not exactly what Trump wants as he yearns for cheaper financing for massive federal deficits.

On Friday the president repeated his criticism of Powell and said the Fed's policy rate should be 1%, a low level typically used by the Fed to boost a weak economy not, as the Fed is currently attempting to do, temper inflation with tight monetary policy.

The Fed is expected to hold its benchmark rate steady in the 4.25%-4.50% range at its July 29-30 meeting, a level policymakers regard as at least moderately restrictive. The Fed last cut rates in December, when policymakers started assessing the possible impact on prices from the import tariffs that Trump quickly began imposing after returning to the White House in January.

Rate cuts are expected to resume later this year, with investors anticipating a quarter-percentage-point reduction in September.

But those odds slipped to nearly 50-50 this week after the Consumer Price Index showed inflation rose to 2.7% in June from 2.4% in the prior month. A trend that saw declining prices for goods is beginning to shift, adding to overall inflation, in a sign businesses may have begun passing some of the tariffs along to consumers.

Powell and other Fed officials said they expected price increases to quicken this summer. They have been reluctant to cut rates until it is clear how much inflation is in train, how long it persists, and whether the economy begins to slow enough to ease the pressure on prices.

Fed policymakers will receive two more months of jobs and inflation data before their meeting in September, and investors - and Trump administration officials - will be listening closely to Powell's post-meeting press conference on July 30 for language that leans towards a rate cut then or not.

In the final comments before policymakers begin a "blackout" period on public statements before the next meeting, the focus remained largely on inflation and how June's uptick showed prices rising across an array of largely imported goods.

Trade and tariff issues are now "the key drivers of the U.S. economic outlook," Fed Governor Adriana Kugler said on Thursday, adding that with price pressures building, the central bank needed to keep rates steady "for some time" to hold inflation and inflationary psychology in check.

Source: Investing.com