President Donald Trump is again ratcheting up the pressure on the US Federal Reserve. He claims that inflation is under control, and the Fed is already supposed to be lowering interest rates to assist businesses and consumers. But in the central bank, there is a different attitude.
In spite of the pressure, the majority of the Fed officials are not eager to reduce rates at their meeting on July 29–30. Just two policymakers, Governor Christopher Waller and Vice Chair Michelle Bowman, have suggested that they’re willing to consider a cut in September. The remainder of the board is giving signals of caution.
Boston Fed President Susan Collins put it this way: “We’ll only have one more set of data before the July meeting. That’s not enough. We need a clearer picture.” Like many of her peers, Collins expects rates to move lower later this year, but not yet.
Inflation Still a Key Concern Amid Tariff Uncertainty
One of the main reasons for caution at the Fed is inflation. The target of the Fed is to maintain inflation at 2%. In April, it was 2.1%. Economists predict May data, arriving soon, will post an increase to 2.3%. That is a worrisome trend.
Trump’s new tariffs are also a wild card. As they increase the cost of imports, they may propel inflation even further. Powell and other Fed officials prefer to watch that unfold before acting.
Chicago Fed President Austan Goolsbee stated, “My hope is that we don’t see inflation rise, but we need to wait a few months to be sure.” The Fed has been forthright: if tariffs drive up prices, they’ll have to act judiciously, not reflexively. San Francisco Federal Reserve Bank President Mary Daly seconded this by stating her opinion remains unchanged, she still anticipates rate reductions down the line, most likely by fall.
Markets Taper Expectations, Focus on September
Investors and markets closely follow the Fed’s every step. Initially, people had hopes for a July rate cut. Now they are disappearing. Futures markets indicate more possibility of the first cut occurring in September rather.
Fed officials’ projections published earlier this month indicate two quarter-point reductions in 2025, but no great sense of urgency in the short term. Most officials think the current rate level, between 4.25% and 4.50%, is high enough to contain inflation without damaging the job market. Unemployment remains quite low at 4.2%. Jobs are moderating, but there is no indication of a sharp slowdown. That leaves the Fed space to wait.
Balancing Politics and Policy
The independence of the Fed is also in question. Trump has publicly lambasted Chair Jerome Powell, labeling him “terrible” for not cutting rates. He’s even made statements about replacing him before his term expires in May.
Such political pressure unsettles investors. The central bank is always supposed to remain above politics, making decisions on data rather than deadlines. So, despite what the President wants, the Fed is holding its ground, for now.
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