Doubts about Federal Reserve independence reverse as inflation expectations continue to decline

FXMarkets June 30 Report—— The independence of the Fed is crucial for the central tendency of interest rates.

Recently, the independence of the Fed has been reshaped, and the central trend of inflation has started to shift, becoming the core theme dominating the global macro market.

This article focuses on the Fed's three core issues: policy independence, the medium- to long-term trajectory of inflation, and the market communication mechanism. Combining the latest Supreme Court decisions and inflation data, we analyze the underlying logic of the current Fed policy framework and its actual impact on gold prices.

Policy Setting: Fed Independence Consolidated, Inflation Concerns Lowered

The cornerstone of the Fed's monetary policy lies in the independence of policymaking, where the core is that interest rate setting is entirely driven by professional economic data, rather than interference from administrative or political forces.

Recently, the U.S. Supreme Court made a crucial 5:4 ruling in Trump v. Cook, rejecting attempts to remove Fed Governor Lisa Cook in the absence of valid conviction or substantive evidence, thus upholding the fundamental system of the Fed's independent operation.

The core significance of this ruling is to eliminate the possibility of the White House manipulating monetary policy by arbitrarily appointing or dismissing Fed governors and inserting partisan personnel.

Previously, the White House argued that the President could remove Fed officials at will for "reasonable cause" as subjectively determined, with the judiciary having no authority to review such removals. Should this premise be accepted, the Fed would become a tool of politics, and interest rate policy would serve political objectives rather than economic fundamentals.

The Supreme Court's decision clarifies that Fed governors are protected by legislation, and administrative power cannot arbitrarily interfere with personnel appointments or policy decisions.

It's worth noting that, at the same time, the Supreme Court recognized the President's authority to unilaterally remove officials from other independent regulatory agencies, but made an exception for the Fed, highlighting the special institutional status of the central bank's independence from political intervention.

Lisa Cook herself also stated that the essence of this controversy was political forces pressuring independent monetary policy, while the outcome of the ruling has solidified the Fed's principle of “data-driven policy serving the interests of the entire economy.”

Since joining the Fed in 2022, Cook has always upheld objective and professional policy judgment, being a key defender of the Fed’s independence.

Inflation Pattern: Short-term Disturbances Phased Out, Medium- to Long-Term Inflation Persistently Elevated

While there are different views on the inflation outlook, there is a consensus: absent new geopolitical shocks or a shift in monetary policy, the short-term downward trend in U.S. inflation is clear, but it is unlikely to quickly return to the 2% policy target in the medium to long term.

Currently, the U.S. PCE inflation year-on-year rate stands at 4.1%. Although it has retreated significantly from its peak, it is still well above the Fed’s 2% long-term target.



First, the easing of geopolitical tensions in the Middle East and the restoration of smooth shipping through the Strait of Hormuz have started to drive energy prices downward after their previous spike, gradually repairing the inflationary energy premium.

Second, the price transmission cycle from tariffs has peaked, with core goods inflation continuing to cool. Once prices fully return to pre-tariff norms, this will further drag overall inflation down by more than 0.5 percentage points. Clearing just energy and tariff factors is enough to pull inflation into the 2.5% range.



The main sticky component of current inflation centers on core non-housing services, which have caused inflation to consistently exceed targets.

Among them, price increases in airfare and asset management fees are short-term mechanical fluctuations that are expected to revert as statistical baselines and energy prices correct. However, inflation in labor-intensive services such as healthcare, entertainment, hotels, and dining is highly sticky and remains well above pre-pandemic norms over the long term, representing the main barrier to inflation moderation and a structural cost the U.S. economy must bear for a soft landing.

Overall, the short-term trend of cooling inflation is clear, but the persistently elevated medium- to long-term central trend cannot be reversed easily. The uncertainty in inflation directly determines that the Fed cannot easily shift to an accommodative policy stance.

Macroeconomic Wrap-Up and Gold Price Linkage: Fed Policy Setting Dominates Medium- to Long-Term Gold Pricing

In the medium-to-long term, with the U.S. inflation central trend stuck at a high 2.5%-3% range, it's difficult for the Fed to quickly start a loose rate-cutting cycle, and real rates are unlikely to fall significantly. This will also limit the upside potential of gold.



Moving forward, the degree of inflation persistence and the pace of Fed rate fine-tuning will be key factors determining the direction of gold price breakouts, serving as the core anchors for medium- to long-term trading.