Fed Officials Strike Dovish Tone Ahead of Powell Testimony, Raising July Cut Speculation

Federal Reserve officials are increasingly signaling a potential shift toward easing monetary policy as early as July, a dovish tilt that has caught investor attention ahead of Chair Jerome Powell’s two-day testimony before Congress. Remarks from Governors Christopher Waller and Michelle Bowman, along with Chicago Fed President Austan Goolsbee, have collectively moved market expectations and raised the possibility that Powell himself may strike a softer tone when he addresses lawmakers.

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The dovish drumbeat started Friday with Waller, a known policy dove, who said the Fed may be in a position to cut rates as soon as the July meeting. While Waller has hinted at this view before, his comments were more definitive this time around. “So far, the data has been fine, with no reason to wait much longer to cut,” he said, pointing to softening in the labor market and signs of inflation stabilization. He emphasized that the Fed shouldn’t “wait for the job market to crash” before adjusting policy—a clear sign that he believes the risk of overtightening now outweighs the threat of lingering inflation.

Waller’s view alone may not have rattled markets. As one of the more dovish members of the FOMC and a rumored contender for the Fed chair role when Powell’s term ends next year, his comments were viewed by some as partially self-serving. But the dovish camp gained new weight Monday when Fed Governor Michelle Bowman—typically more hawkish and newly appointed to oversee bank supervision—voiced openness to cutting rates as early as July, should inflation pressures remain contained.

“It is time to consider adjusting the policy rate,” Bowman said, citing “minimal” inflation impacts from trade policy shifts and warning that downside risks to the labor market should now be given more attention. Her remarks were especially notable because she is seen as a top contender for the chair position and is often aligned with the Fed’s more centrist bloc. With Bowman adding her voice to the call for caution, markets took serious notice.

That view was echoed by Goolsbee, who has gained a reputation as a pragmatic voice within the central bank. Speaking at a Milwaukee business event, Goolsbee said the expected inflation surge from new tariffs has thus far failed to materialize. “If we do not see inflation resulting from these tariff increases, then, in my mind, we never left what I was calling the golden path,” he said, implying that rate cuts may still be appropriate if inflation continues to behave. Goolsbee also noted that the pass-through from tariffs has been modest and delayed, diminishing their potential to derail the Fed’s progress on inflation.

Taken together, the comments represent a notable rhetorical pivot. While the Fed held rates steady at its June policy meeting and reiterated the need for more data, the latest Fed speak suggests growing comfort with the idea that inflation is under control enough to begin easing policy. The market is responding accordingly: Fed funds futures now price in a 22% chance of a July cut, up sharply from 14% just a day prior. Expectations for a rate cut by the September meeting have climbed to 83%, reflecting confidence that the easing cycle is near.

Critics have been quick to point out the political undertones. Waller’s repeated calls for cuts have raised speculation he is positioning for Powell’s job, while Bowman’s shift comes just weeks into her new role overseeing financial regulation—a post that could serve as a platform for broader leadership ambitions. Still, regardless of the motivation, the substance of their remarks carries weight for markets that are highly sensitive to signs of policy inflection.

Beyond the political calculus, there is also the fundamental backdrop. Inflation has cooled notably in recent months, the labor market is showing tentative signs of softening—especially among new graduates and part-time workers—and trade policy risks are proving less inflationary than feared. This confluence of data gives the Fed some leeway to shift its tone without appearing reckless.

Chair Powell will now have the opportunity to shape the narrative when he testifies before Congress starting Tuesday. While he is unlikely to pre-commit to a cut, especially one so soon as July, markets will be watching closely for any indication that he shares the growing sense of dovishness expressed by his colleagues. Powell’s testimony could also provide clarity on how the Fed is interpreting the limited inflationary effects of the new tariffs and whether officials believe progress on trade and labor market conditions justifies a rate cut in the near term.

With investors now leaning toward a rate cut as the base case for September and seeing July as increasingly viable, Powell’s remarks may either reinforce this trajectory or pull the market back in line with a more cautious, data-dependent approach. Either way, the door to rate cuts is now more open than it was just one week ago—and the tone in Washington this week may determine just how wide it swings.