At 1:32 AM on Tuesday, while — I don’t know — finding his way to the bottom of a KFC bucket and monitoring a live drone feed of Iran’s airspace, Donald Trump took a few minutes to weigh in on Jerome Powell’s forthcoming congressional testimony.

“I hope Congress really works this very dumb, hardheaded person over,” Trump seethed, in the course of repeating, for at least the fourth time, an outright lie about the juxtaposition between ECB and Fed policy.

Trump continues to tell Americans that Europe’s “had 10 cuts” while the US hasn’t seen any. That isn’t true. The ECB is on rate cut number eight, and the Fed cut rates in September, November and December. If Trump wants to argue that Powell’s politicizing policy in 2025, he (Trump) can make the case without lying. All he has to say is that Christine Lagarde has so far delivered four cuts this year and Powell none. The fact that Trump insists on perpetuating a lie even when the truth would serve the same purpose says a lot about his character.

Anyway, Powell stuck mostly to the script on Tuesday, but he said existing data makes a case for rates at neutral. That’s notable. Neutral’s well below current Fed funds. Both Chris Waller and Miki Bowman have come out publicly in favor a July rate cut. Waller last week said it doesn’t make sense to keep rates 125bps into restrictive territory with inflation running “very close” to target.

It’s hard to argue with that, and indeed Powell isn’t debating the point other than perhaps to suggest Waller’s overstating the extent of current policy restriction (Powell seems to believe current Fed funds is 50bps or 75bps above neutral). Rather, he’s leaning on the core PCE forecasts in the SEP to explain why the Fed isn’t cutting.

Powell told Congress on Tuesday that the reason the Fed isn’t at neutral right now is that the inflation projections are too high (again, you’re encouraged to recall that the median core PCE projection in last week’s SEP was 3.1% for 2025, up from 2.8% in March and 2.5% in December). But, Powell said, lower inflation and/or a weaker labor market could mean an earlier cut.

He reiterated that the Fed’s policy decisions will be driven by the path of the US economy which, along with the labor market, remains “solid.” Although inflation’s projected to move up due to tariffs, it may not come in as strong as expected. It’s not possible to know how much of the tariff costs will ultimately be passed through to consumers. And so on. The dollar slipped as he spoke.

Again, I think Powell’s remark about neutral is worth consideration. With the likes of Waller and Bowman on the record favoring a cut and rates still well into restrictive territory (or at least based on admittedly questionable assumptions about the location of the neutral rate), it’s possible Powell ends up forced to move next month.

I realize that assessment runs counter to the dot plot refresh (in which seven participants saw no cuts at all this year) and also to the marked-up core CPI forecasts, but a lot can happen in the long wait between the July FOMC and the September SEP meeting. That temporal gap is a perennial issue. August is known for low liquidity and elevated vol. Although it’s always “best” to wait for an SEP meeting to move, there’s an argument that if September’s a go, you should just do it in July. Because things can get messy in-between, as they did last year.

Personally, I think the odds of a July cut are under-appreciated here. A benign core PCE readout for May is a foregone conclusion on Friday. If the CPI and PPI data for June come in soft, that’ll be four straight months of target-consistent inflation. Barring a blowout June NFP headline, it may be difficult for Powell to make the case that rates should remain 125bps (or 75bps or whatever) above neutral all the way through late September.

Trump said Tuesday that the country “will be paying for [Powell’s] incompetence for many years to come.” The Fed board, Trump went on, “should activate.”