Fed Minutes: Most Officials Believe Tariffs Could Continue to Push Inflation Higher, a Few Open to Considering Rate Cuts at Next Meeting
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Fed Minutes: Most Officials Believe Tariffs Could Continue to Push Inflation Higher, a Few Open to Considering Rate Cuts at Next Meeting
Most Federal Reserve officials expect interest rate cuts to resume later this year.
Navigating Web3 tides with focused insightsBy Hao He, Wall Street Horizon
The Federal Reserve's latest June meeting minutes reveal growing divisions among officials over the interest rate outlook, primarily driven by differing views on how tariffs might affect inflation.
Nick Timiraos, a prominent financial journalist known as the "new Fed press secretary," wrote that at last month’s meeting, uncertainty about the inflation outlook—combined with pressure from the White House on Fed Chair Jerome Powell—led to internal disagreements over whether and when to resume rate cuts. Most Fed officials expect that rate cuts could resume later this year.
According to the minutes of the Federal Open Market Committee (FOMC) meeting held on June 17–18, while some participants noted that tariffs would cause a one-time price increase without affecting long-term inflation expectations, most believed tariffs could have more persistent effects on inflation.
The June minutes show policymakers highlighted "considerable uncertainty" regarding the timing, magnitude, and persistence of tariffs’ potential impact on inflation. Due to varying transmission channels of tariffs through the economy and differing possible outcomes of trade negotiations, officials hold divergent views on their inflationary implications.
Officials who see rate cuts as appropriate later this year argue that a weakening labor market or modest, transitory inflationary pressures from tariffs could justify easing. However, a significant minority—though not the prevailing view—believe that even without considering an intensification of tariff impacts in the coming months, current inflation has not made sufficient progress toward the Fed’s 2% target to warrant rate cuts.
At the June meeting, the FOMC voted unanimously to keep rates steady in the 4.25%-4.5% range, marking the fourth consecutive hold, which once again drew criticism from President Trump, who has repeatedly called for lower borrowing costs. New interest rate projections released after the June FOMC meeting showed that 10 out of 19 officials expect at least two rate cuts by year-end, seven policymakers anticipate no cuts in 2025, and two foresee one cut.
Fed officials and their economic teams believe the risks of a sharp economic slowdown or a substantial rise in inflation since the previous meeting in early May have diminished, largely due to President Trump adopting a more conciliatory stance in several trade disputes. Nevertheless, the minutes indicate that officials still see elevated risks of both higher inflation and labor market weakness. A majority are more concerned about inflation risks than about slowing economic growth.
The minutes also suggest that both those favoring rate cuts and those supporting a wait-and-see approach agree that current interest rate levels likely are not meaningfully above the neutral rate—the level that neither stimulates nor restrains economic growth. This implies that even if officials resume rate cuts without seeing major economic deterioration, they may opt only for limited, modest adjustments.
Complexity From Tariffs
The June meeting minutes emphasize that rapidly changing economic policy conditions have made the Fed’s policy decisions more complex. President Trump has expanded tariffs on U.S. trading partners while advancing policy changes in taxation, immigration, and regulation, all of which have heightened economic uncertainty.
The minutes state: "Participants judged that the economic outlook remains uncertain amid ongoing developments in trade policy, other government policies, and geopolitical risks, although overall uncertainty has declined somewhat since the previous meeting."
Most economists expect tariffs will push up inflation and weigh on economic growth. Fed Chair Powell has said that absent tariffs, the Fed might already have cut rates further this year.
However, current economic data have not yet shown broad-based effects from tariffs, sparking debate among policymakers over how, when, and to what extent tariffs will raise prices.
The next key data release will be the U.S. June Consumer Price Index (CPI), scheduled for July 15.
Proceeding With Patience
Since the June meeting, Fed Governors Christopher Waller and Michelle Bowman have indicated that given recent soft inflation readings, they could support a rate cut this month. The minutes show that "a few" officials were open to considering a rate cut at the July 29–30 meeting.
A majority of officials believe that "some degree" of rate cuts this year could be appropriate.
Nonetheless, most Fed officials still view the overall U.S. economy as stable, allowing them to remain patient on interest rate adjustments. The minutes note that policymakers see economic growth as "solid" and the unemployment rate as "low."
The minutes add: "Participants agreed that, despite reduced uncertainty around inflation and the economic outlook, a cautious approach to adjusting monetary policy remains warranted."
Although recently released U.S. labor market data showed pockets of weakness, the overall picture remains stable, potentially reducing pressure on officials to cut rates at the July meeting.
Federal funds futures contracts indicate investors expect one rate cut each in September and December. Timiraos notes that Powell’s recent public remarks have not paved the way for a July cut, and markets widely expect September to be a more likely starting point. During last month’s congressional testimony, Powell did not, like Waller and Bowman, pre-emptively signal that inflation would soon ease enough to justify cuts. Instead, he said:
We are still watching. We’ll get the June inflation data, and then the July data. We are fully open to the possibility that the pass-through of tariffs to retail prices could be less than expected. If so, that would have implications for our policy.
In addition, policymakers continue discussing the periodic review of the Fed’s policy framework, including the strategic document guiding its monetary policy implementation. The minutes show officials have begun preliminary discussions on enhancing communication tools, including possible revisions to the quarterly Summary of Economic Projections (SEP), and the potential for "broader use of alternative scenario analysis."
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