Only Two Support a Rate Cut This Month
Divergence Over Magnitude and Timing
September Seen as Most Likely for First Rate Cut This Year
Federal Reserve (Fed) officials generally agreed at last month's meeting that it would be appropriate to lower the benchmark interest rate in the second half of this year. However, only a minority of officials supported a rate cut within this month.
According to the minutes of the June Federal Open Market Committee (FOMC) meeting released by the Fed on July 9 (local time), only two officials expressed the minority view that a rate cut could be possible as early as this month during the regular meeting held on June 17-18. The majority of officials judged that a rate cut would only be possible in the second half of this year.
The minutes stated, "Most meeting participants viewed the inflationary impact of tariffs as temporary or moderate and expected that a rate cut would be appropriate later this year." At the meeting held last month, the Fed unanimously decided to keep the benchmark interest rate unchanged at 4.25-4.50%.
The Financial Times (FT) reported, "Among the meeting participants, 10 expected at least two rate cuts (each by 0.25 percentage points) within this year, while 7 believed there would be no rate cuts at all, and 2 expected a single rate cut."
While there was broad agreement on the need for a rate cut in the second half of the year, there were differing views regarding the magnitude and timing of the cut. While a couple of officials believed a rate cut could be possible within this month, some officials expressed the opinion that it would not be appropriate to lower rates at all this year. The two officials referred to in the minutes as supporting a rate cut are believed to be Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller. Both have recently made public statements suggesting that the timing of a rate cut could be moved forward.
The disagreement over the timing of a rate cut stems from uncertainty caused by President Donald Trump's tariff policy. Most Fed officials expressed concern at the June meeting that the tariffs imposed by President Trump could have persistent effects on inflation, while some viewed the impact as temporary.
The minutes noted, "Several participants believed that tariffs would only cause a temporary increase in prices and would not affect long-term inflation expectations, but most participants pointed out that tariffs pose a risk of having a more persistent impact on inflation." In addition, Fed officials agreed that tariffs could lead to some degree of price increases, but also noted, "There is considerable uncertainty regarding the timing, magnitude, and duration of these effects."
Bloomberg News analyzed, "There is a significant divergence of views within the Fed regarding how tariffs will affect inflation."
Taking these factors into account, officials agreed that a cautious approach to future monetary policy adjustments remains necessary. The minutes stated, "Participants agreed that although uncertainty regarding inflation and the economic outlook has diminished, a cautious approach to monetary policy adjustments is still appropriate."
The release of these minutes comes as President Trump continues to strongly pressure Fed Chair Jerome Powell and other officials to lower interest rates. Since the launch of the second Trump administration, the Fed has kept the benchmark interest rate unchanged for two consecutive meetings.
On this day, President Trump once again publicly criticized Chair Powell on his social media platform Truth Social, stating, "Our Fed rate is at least 3 percentage points too high," and calling Powell "Too Late." Previously, President Trump had called for Powell's resignation. Despite such all-out pressure from President Trump, the prevailing view is that the Fed's first rate cut of the year will only be possible at the September meeting.
Reuters reported, "Many market participants expect the first rate cut to take place at the September meeting, with a total reduction of about 50 basis points expected by year-end." Given that the Fed typically adjusts the benchmark rate by 0.25 percentage points (25 basis points) per move, there is speculation that one cut each could occur at the FOMC meetings in September and December. The Fed holds a total of eight FOMC meetings this year. The next meeting is scheduled for July 29-30.
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