Fed Officials Divided Over Timing of Interest Rate Cuts

The Federal Reserve is experiencing internal divisions over the timing and extent of interest rate cuts, as revealed in the minutes from the June 17–18 meeting. While all policymakers agreed to maintain the current interest rate range of 4.25% to 4.5%, there was a notable lack of consensus on the next steps. The minutes highlighted a split among officials, with some advocating for aggressive rate cuts to combat slowing economic growth, while others favored a cautious approach due to inflation risks stemming from tariffs.

The majority of officials supported at least one rate cut later this year, viewing the inflation caused by tariffs as "temporary and modest." However, a smaller group believed that inflation remained too high to justify easing monetary policy, especially given the economy's resilience in certain areas. This disagreement underscores the Fed's internal struggle to balance economic growth with inflation control.

Some Fed members were ready to cut rates as early as this month, while others argued against any cuts in 2025. The minutes did not name the officials holding these views, but Michelle Bowman and Christopher Waller had previously expressed support for a rate cut at the next Fed meeting on July 29–30, provided inflation does not surge again. Meanwhile, several officials cautioned that the current rate might already be close to a neutral level, suggesting limited room for further cuts. They pointed to inflation still above the 2% target and signs of economic resilience.

The Fed's internal projections indicate two rate cuts this year, with three more expected over the next two years. However, the dot plot, which reflects individual policymakers' views, shows a wide range of opinions, with some advocating for deeper cuts and others favoring a hold on rates. This divergence highlights the uncertainty and differing perspectives within the Fed.

President Trump has been vocal in his criticism of Fed Chair Jerome Powell, both in public speeches and online. Despite the pressure, Powell has maintained that the Fed will not respond to political influence. He emphasized the need for a cautious approach due to the uncertainty surrounding inflation and the economy's strength. This stance was echoed in the minutes, which stated that while uncertainty about inflation and the economic outlook had decreased, a careful approach to adjusting monetary policy remained appropriate.

Trump's recent tariffs have added to the complexity of the situation. His announcement of new tariffs and warnings to world leaders have made it challenging for the Fed to assess the full economic impact. Despite these threats, inflation has remained low, with the Consumer Price Index rising only 0.1% in May. Although inflation measures are slightly above the Fed's 2% target, public concern has been minimal.

Peter Navarro, an economic adviser to Trump, criticized Powell in an op-ed, accusing him of making significant policy errors. Navarro compared Powell to Arthur Burns, the Fed chair during Nixon's presidency, who kept rates too low to aid Nixon's re-election, leading to long-term inflation and stagnation. Navarro argued that Powell's lack of an economics degree and his past missteps, such as raising rates in 2018 and delaying action on inflation in 2021, have weakened his credibility. Navarro also claimed that Powell failed to warn Democrats about the inflationary impact of their spending bills and is now on the verge of another mistake by not acknowledging the positive effects of Trump's policies on economic growth.