(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Jamie McGeever

ORLANDO, Florida, Aug 13 (Reuters) - It's widely

believed that U.S. President Donald Trump's insistence on lower

interest rates is what's making life most difficult for Federal

Reserve Chair Jerome Powell and his colleagues. But what's

causing the biggest headache for Fed officials is, in fact,

probably more prosaic: economic data.

The key challenges facing Powell were encapsulated perfectly on

Tuesday by the release of an inconclusive U.S. inflation readout

followed by Trump's latest verbal attack - and threats of a

"major lawsuit."

Politics aside, most Fed officials agree that rates will

fall this year, with the median "dot plot" in the Fed's June

Summary of Economic Projections pointing to 50 basis points of

easing through December. Traders are betting heavily that the

first move will be in September.

But it's tough to justify that confidence based purely on

economic data. While some indicators suggest policy should be

eased sooner rather than later, others indicate that would be a

high-risk move. Looking at the "totality of the data," to borrow

a phrase from Powell, there is no clear signal either way.

PLENTY NOISE, FEW SIGNALS

Consider the latest U.S. inflation and employment reports, the

two most important data sets. On their own, they don't appear

soft enough to warrant the Fed trimming rates right now, but

they also aren't firm enough to dispel the notion that policy

easing is only a question of "when" not "if."

Annual headline CPI inflation held steady in July at 2.7%,

contrary to an expected rise, with month-on-month increases in

line with forecasts. But annual core inflation rose more than

expected to 3.1%, the highest level since February and still

meaningfully above the Fed's 2% target.

Economists calculate that durable goods prices rose 1.7% in the

first six months of the year - the biggest six-month rise since

1987, excluding the COVID-19 pandemic. They warn there is likely

more of that to come as Trump's tariffs kick in.

"July's CPI data are probably more worrying under the

surface than in the headlines, and we expect the upward pressure

to goods inflation to build in the coming months," James

Pomeroy, a global economist at HSBC, wrote on Tuesday.

Meanwhile, last week's employment report showed job growth in

July was much weaker than anticipated, and, more importantly,

downward revisions to the previous two months were among the

biggest on record.

But these ominous signals were offset by accelerating wage

growth, an increase in hours worked, and a meager rise in the

unemployment rate. Hardly signs of a shaky labor market.

Nevertheless, markets focused more on the softer elements in

the jobs data, suggesting investors think the Fed's bar to

easing is much lower than the bar to standing pat. Indeed, the

rates market is now pricing in a near-100% chance of a cut at

the U.S. central bank's September 16-17 meeting.

RISK MANAGEMENT

But markets may be getting ahead of themselves.

Powell has indicated that a rise in the unemployment rate is

needed for the Fed to act. But that rate is potentially being

distorted by post-pandemic labor supply issues - employers'

reluctance to fire workers and Trump's immigration policies are

limiting the number of people looking for work.

Regardless, cutting before seeing a meaningful rise in the

unemployment rate would be tough to justify, creating a

significant communications problem for Powell.

And on a more fundamental level, as economist Phil Suttle

noted on Tuesday, is preparing to cut rates at full employment

just as inflation is accelerating good risk management?

This is a particularly apt question when looking at

financial markets: the S&P 500 and Nasdaq Composite

indexes, gold, and bitcoin are all near record highs,

and corporate bond spreads are the tightest in years. This

hardly looks like a restrictive policy environment.

In that light, patience and caution would appear justified,

especially given the added risk of appearing to buckle under

Trump's political pressure. If the Fed wants to cut, Powell

could use some cover. Unfortunately for him, he's unlikely to

find that in this noisy data.

(The opinions expressed here are those of the author, a

columnist for Reuters)

(By Jamie McGeever

Editing by Paul Simao)