According to BlockBeats, a report by Wall Street Journal journalist Nick Timiraos, known as the 'Fed's mouthpiece,' indicates that the Federal Reserve is engaged in an internal debate on how to address the risks posed by tariffs imposed by U.S. President Donald Trump. This discussion could potentially disrupt a period of relative unity within the Fed, as officials may disagree on whether the new cost increases justify maintaining high interest rates.
In recent weeks, Federal Reserve Chairman Jerome Powell has suggested that the threshold for interest rate cuts might be lower than it appeared earlier this year. However, a rate cut is not expected this month. Instead, Powell has outlined a 'middle path,' where lower-than-expected inflation data or a slightly weaker job market could prompt the Fed to initiate rate cuts by late summer. This standard is less stringent than the previous threshold, which required more significant signs of economic deterioration amid heightened inflation expectations due to larger tariff increases.
In April, President Trump announced tariff increases that exceeded expectations, raising concerns about a potential stagflation scenario characterized by slowing economic growth and rising prices. This development disrupted the Fed's plans to resume rate cuts this year. However, two developments have since contributed to a possible shift. First, Trump has reduced some of the most extreme tariff hikes. Second, the anticipated consumer price increases related to tariffs have not materialized. This situation provides a critical test for competing theories on whether tariffs will lead to inflation and has sparked internal disagreements on how to manage forecasting errors.