Officials' Attitudes Turn Cool: More Data Needed for Rate Cut
Although some Federal Reserve members like Waller and Bowman have recently shown openness to a rate cut in July, many high-ranking officials including Chair Powell, New York Fed President Williams, and San Francisco Fed President Daly quickly expressed caution. They generally believe it's not yet sufficient to confirm that the trend of inflation decline is sustainable, especially with the unclear impact of tariffs.
In an interview, Daly admitted that although inflation data has improved and the tariff impact might not be as severe as expected, this only leaves her open to a "fall" rate cut. She stated, "I have always supported policy adjustments in the fall, and this stance has not changed."
Meanwhile, the Fed's preferred price measure—the core PCE price index for April—rose 2.1%, slightly higher than the 2% target. Despite a drop in initial jobless claims, continued claims have reached a new high since November 2021, suggesting structural pressures in the labor market.
Several Fed Officials Clearly Oppose a July Rate Cut
Besides Daly, Boston Fed President Collins, Richmond Fed President Barkin, and Chicago Fed President Goolsbee have also stated in various situations that they are not ready to support a rate cut at the July meeting.
Collins emphasized she wants to see more economic data, particularly on inflation and the labor market, before making policy decisions. She believes, "There's no urgency" to act immediately; the most reasonable path is "to cut rates later this year."
Barkin stressed that tariffs could still drive up prices, and the Fed should wait for "more visible market conditions" before making decisions to avoid swift adjustments.
Goolsbee's perspective was slightly more optimistic. He noted that if inflation does steadily tend toward 2% and the economic outlook becomes clearer, the Fed may reconsider easing policy. He added, "We must ensure the impact of tariffs is under control."
Powell Testifies to Congress: Emphasizing Caution Amid Uncertainty
During his testimony to Congress, Powell reiterated concerns about tariff-induced inflation uncertainties. He stated that if not for the tariffs' ambiguous price outlook, the Fed might have initiated a rate cut based on receding inflation. "Our strategy now is to continue observing to gain more information about economic trends."
He pointed out that the impact of tariffs on prices remains to be seen, "For now, the Fed has ample space to be patient before changing policy stance."
Trump's Frequent Pressure but Officials' Stance Unchanged
Despite the Fed's cautious stance, President Trump continues to escalate his verbal attacks. He publicly criticized Powell for the third time this week, saying "We must tackle this guy." However, insiders reveal that Trump has not yet decided on Powell's successor and does not plan to take immediate action.
While The Wall Street Journal suggests Trump may advance the nomination of a new chair to influence monetary policy, Chicago Fed President Goolsbee responded, stating the "shadow chair" would have no practical impact.
Even though Trump continues to pressure the Fed to push for rate cuts, most Fed officials currently advocate a "wait-and-see" approach, believing that the trends in inflation and the impact of tariffs are still unclear, making a policy change in July premature. As the end-of-July meeting approaches, market bets on an immediate Fed rate cut have cooled significantly.
