Fed Divided as Trump Pushes for July Rate Cut

Federal Reserve Chair Jerome Powell is under intense pressure from President Donald Trump, who is eager for interest rate cuts. Trump's frustration with Powell's cautious approach has led him to consider replacing Powell this summer. Despite the pressure, Powell retains the support of most of his policy team.

According to a detailed report, while a couple of Trump’s appointees are now backing a July rate cut, most of the Fed’s twelve voting members still prefer to hold steady. Inside the Fed, tensions are rising ahead of the July policy meeting, where the committee might be split. On one side, Michelle Bowman and Christopher Waller, both appointed by Trump, are open to cutting rates. On the other side, a larger group, including all the key reserve bank presidents, argue that there is no rush to act.

Bowman's stance caught many off guard as she was recently named the Fed’s vice chair for supervision and was one of the most hawkish members last year. Waller also echoed Bowman’s view, telling reporters he is now open to loosening rates sooner than later. This dual push from both governors initially made traders nervous, with betting markets showing the odds of a July rate cut rising from 14% to nearly 25% after Bowman’s comments. However, the rest of the committee quickly pushed back.

John Williams, the New York Fed President, was the first to push back, stating that the current target range of 4.25% to 4.5% is still “entirely appropriate” and that the Fed should wait for more data before taking action. Other Fed presidents followed with the same message, emphasizing the need to be cautious. An analyst said that “Waller and Bowman are definitely still outliers versus the committee as a whole.”

If both Bowman and Waller vote for a cut next month and the rest of the committee doesn’t, it will be a rare moment. It’s been 32 years since two Washington-based Fed governors dissented in the same meeting. The divide is real, with the Fed’s internal projections making the disagreement even clearer. Of the voting members, ten support cutting rates two or three times before the year ends, while seven want to wait until 2026. The committee’s split is public, and Trump is watching every move.

Trump’s loud demands for cheaper credit are clashing with warnings from economists inside the Fed. Powell, testifying before Congress, said the only reason rates haven’t already been cut is concern that new tariffs could trigger a new wave of inflation. Without those risks, the Fed might have acted already. Bowman and Waller argue there’s no real danger of that, with inflation dropping and forecasts showing that the Fed’s preferred inflation metric probably rose just 2.3% in the twelve months ending May, which is close enough to the 2% target.

Waller thinks companies will absorb most of the tariff costs instead of passing them to shoppers. Bowman said the economy’s already slowing down and that means consumers won’t trigger another inflation spiral like the one seen in the early 2020s. However, most Fed officials aren’t buying that. Williams pointed to a survey showing that many businesses are passing all their tariff-related costs directly to consumers. Other economists believe companies may have front-loaded inventory before the tariffs hit, so the price impact just hasn’t shown up yet. With inflation memories still fresh, there’s concern that people are hyper-sensitive to even small price increases, which can turn into real price pressure.

Mary Daly, who runs the San Francisco Fed, also weighed in, saying that although she sees a path to lower rates later in the year, the risks of cutting now are too high. “I look more to the fall,” she said. Her voice adds to the majority who are saying: not yet. So, as July approaches, the Fed is walking a tightrope. Trump wants action. Bowman and Waller are nodding along. But Powell isn’t moving, at least not without more numbers. And the rest of the table is still on his side… for now.