Fed Minutes Signal Inflation Could Ease—but Internal Split Leaves Rate Cuts in Question
Tariff worries and a divided Federal Reserve inject uncertainty into rate cut timing—even as inflation shows signs of cool-down
Fresh minutes from the Federal Reserve’s June 17–18 meeting offer a nuanced view: while inflation appears to be moving lower, growing concern among policymakers over the inflationary impact of tariffs has created a stark internal divide. That split may delay meaningful rate cuts until September or later, even as the central bank edges toward a softer policy stance.
Most Fed officials continue to view President Trump’s tariffs as capable of causing persistent inflation, not just a one-time bump—fanning fears that long-term price pressures could become entrenched if trade tensions remain unresolved. A minority, however, believes the effect will be temporary or modest.
Just a “couple” of officials voiced support for an imminent rate cut—possibly as early as July. Meanwhile, ten members expect to see two or more quarter-point rate cuts by year-end, but seven forecast no cuts at all, and two foresee only one cut.
Heading into the meeting, the Fed held its benchmark rate steady at 4.25%–4.50%, the fourth consecutive hold since December. Officials emphasized a data-driven, cautious strategy given continued uncertainty.
Despite underlying inflation trends tracking downward—core inflation has stayed near or slightly above 2% for four straight months—Fed Chair Powell stressed that strong labor market data and tariff risks counseled patience. Investors quickly downgraded the odds of a July cut to near zero following better-than-expected employment numbers.
To the public, consumer sentiment received a bump as well. A New York Fed survey reported that one-year ahead inflation expectations declined to 3%, down from 3.2% in May, while longer-term expectations remained stable—suggesting improved anchoring of inflation expectations.
What does this mean for markets? Analysts now believe the September Fed meeting (Sept 16–17) is the most likely point for initiating rate cuts, with a probable second cut by December. But the mixed internal outlook suggests the threshold for any easing remains elevated.
Within the Fed, dovish members like Vice Chair Michelle Bowman and Governor Christopher Waller maintained that rates could fall as soon as late July, but even they tempered expectations after stronger employment figures.
Put simply, the minutes reveal a Federal Reserve at a crossroads: inflation is cooling, and the economic slowdown signals may be emerging, but trade-driven price shocks and internal disagreement are slowing the path to relief. As the Fed continues to parse upcoming inflation data, its cautious tone reflects both patience and deep policy ambivalence.
For consumers, investors, and businesses—especially those sensitive to borrowing costs or credit conditions—the delay in ease could shape spending, investment, and financing decisions well into the fall. Key data releases due next week, particularly CPI and core PCE figures, are likely to be decisive in tipping the scales one way or the other.