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Federal Reserve Split on Future Rate Cuts as Economic Crosswinds Intensify

The Federal Reserve is inching toward interest rate cuts — but how fast and how far remains a major point of contention among policymakers, according to minutes from the June 17-18 Federal Open Market Committee (FOMC) meeting released Wednesday.

Officials unanimously voted to keep the benchmark federal funds rate steady at 4.25%–4.5%, where it has remained since December 2024. However, the meeting revealed growing uncertainty inside the central bank about the economic path forward, particularly amid new tariff-related inflation risks and shifting labor market dynamics.

Most See Cuts Coming, But Few Agree on the Details

While “most participants” agreed that at least one rate cut this year could be warranted, officials were sharply divided on timing. The minutes noted that inflation pressures — particularly those stemming from President Donald Trump’s new round of import tariffs — may prove to be “temporary and modest,” reducing the urgency for aggressive tightening.

Some Fed members pushed for rate reductions as early as July, citing weakening job growth and softening consumer spending. Meanwhile, others expressed concern that inflation is still too close to 3%, and that a premature rate cut could rekindle price pressures.

“Several participants judged that the current policy rate may not be far from neutral,” the minutes said — indicating that further cuts might be limited.

Economic Signals Mixed: Growth Slows, Jobs Hold Firm

Recent data paints a complicated picture. Nonfarm payrolls rose by 147,000 in June, beating economists’ forecasts of 110,000, while the unemployment rate fell to 4.1%. However, consumer demand has cooled: personal expenditures slipped 0.1% in May, and retail sales dropped 0.9%, raising red flags about household resilience.

Although Trump’s tariffs — first announced in April — have raised fears of inflation, May's Consumer Price Index rose just 0.1%, suggesting minimal immediate impact. The Fed noted that supply chain adjustments and trade negotiations could limit long-term price effects.

The Political Backdrop: Trump vs. Powell

President Trump has continued applying public pressure on Fed Chair Jerome Powell to ease policy more aggressively. In a series of Truth Social posts and public statements, Trump has called for Powell’s resignation and accused the Fed of hindering economic recovery.

Despite this, Powell reiterated during and after the June meeting that the central bank remains committed to data-driven, independent decision-making, unaffected by political rhetoric.

“Participants agreed… it remained appropriate to take a careful approach in adjusting monetary policy,” the minutes emphasized.

What the Dot Plot Reveals

At the June meeting, the Fed’s updated “dot plot” projected two rate cuts in 2025, followed by three more in 2026. But the spread of estimates from individual members — ranging from zero cuts to multiple cuts this year — highlights just how uncertain the policy path has become.

The summary also noted that policymakers could face difficult tradeoffs ahead if inflation remains sticky while job market conditions deteriorate, forcing the Fed to choose between its two mandates: stable prices and full employment.

Looking Ahead: July Decision Looms

The next FOMC meeting is scheduled for July 29-30, and market participants are watching closely. Futures pricing currently reflects about a 70% chance of a 25-basis-point cut, though this remains highly sensitive to incoming data on inflation, employment, and global trade developments.

For now, the Fed appears poised to maintain its patient stance, emphasizing flexibility in a highly uncertain environment.

“Uncertainty about the inflation outlook has decreased,” the minutes noted, “but risks remain… warranting a cautious approach.”