TechFlow, July 10 — According to Jinshi Data, Nick Timiraos, known as the "Fed whisperer," recently published an article stating that a debate is brewing within the Federal Reserve over how to respond to risks posed by Trump's tariffs. This could end a period of relative unity, with officials potentially splitting over whether new cost increases justify keeping interest rates elevated.
In recent weeks, Fed Chair Powell has suggested the threshold for rate cuts may be lower than it appeared earlier this spring, although no cut is expected this month. Instead, Powell has outlined a "middle path": if inflation data comes in below expectations or the labor market shows modest weakness, that could be sufficient for the Fed to begin cutting rates before the end of summer. This standard is lower than the previously stricter threshold—when broader tariff hikes sparked sharp inflation expectations, the Fed had signaled it would require clearer signs of economic deterioration before considering rate cuts.
Trump’s April announcement of larger-than-expected tariff increases raised concerns about stagflation—slower growth combined with rising prices—and disrupted the Fed’s plans to resume rate cuts this year. However, since then, two developments have prompted a potential shift. First, Trump rolled back some of the most extreme tariff hikes; second, consumer price increases linked to tariffs have yet to materialize. This has created a critical test between competing theories on whether tariffs will drive inflation, sparking internal disagreements over how to manage forecasting errors.
