Fed officials push for rate cuts as Powell resists
Federal Reserve Chairman Jerome Powell told Congress on Tuesday that the central bank does not plan to cut interest rates anytime soon, marking a public break with some board members who had begun pushing for action as early as next month.
Speaking before the House Financial Services Committee during his required semi-annual testimony, Powell said the US economy remains "strong," but stressed the need for more data before making any policy changes.
In his prepared remarks, Powell pointed to the impact of President Donald Trump's tariffs as a continuing inflationary risk. He warned that while the economy continues to show strength, inflation readings could rise.
The Federal Reserve's preferred inflation measure is expected to rise to 2.3% in May, up from 2.1% in April. The core index, which excludes food and energy prices, is expected to reach 2.6%, up slightly from 2.5% the previous month.
Fed officials push for rate cuts as Powell resists
Despite Powell's stance, two key members of the Federal Open Market Committee (FOMC) are now publicly declaring their support for a rate cut. Michelle Bowman, speaking in Prague this week, stated that she would support a rate cut at the next Fed meeting in July if inflation data did not rise sharply.
Her position follows similar statements by Christopher Waller, who said he favors a cautious approach to monetary policy easing. Both were appointed by Trump during his first term and are currently viewed as potential successors to Powell.
The divide became more pronounced after the release of the Federal Reserve's latest "dot plot," which anonymously records each member's monetary policy forecast. The internal projections showed that nine of the nineteen officials favor either no cut or one cut in 2025. Eight favor two cuts, while two see three cuts necessary. Although the vote to keep interest rates steady last week was unanimous, longer-term views suggest the central bank is far from unanimous.
Powell made clear that he saw no urgency. He said the Fed is monitoring the impact of tariffs on prices and wants to avoid any reaction that might be merely a temporary spike. He told lawmakers, "The Federal Open Market Committee's commitment is to maintain stable long-run inflation expectations."
He emphasized that the Federal Reserve cannot allow short-term shocks to lead to permanent policy shifts. He added, "Without price stability, we cannot achieve long periods of strong labor market conditions that benefit all Americans."
Markets retreat from expectations after Trump attacks Powell again.
Futures markets have begun to cool off from the prospect of a July rate cut. Traders now price in only a 23% probability of the Federal Reserve easing policy at its July 29-30 meeting.
There's greater confidence by September, but even that remains uncertain unless new inflation data supports it. The Consumer Price Index (CPI) for May rose just 0.1%, suggesting that inflation remains moderate for now. Nevertheless, the Fed remains cautious, especially as Powell continues to prioritize a long-term view over political or market pressures.
The political pressure did not subside. Early Tuesday morning, Trump used his "social truth" platform to attack again. Directly referring to Powell, he wrote, "Congress must hold this stupid and stubborn individual accountable."
It's not the first time Trump has attacked the Fed chairman, but this latest insult comes as the White House continues to blame the central bank for not supporting growth through cuts.
Bowman and Waller's split with Powell has created rifts within the Federal Reserve, but it is rapidly reshaping market expectations. Investors and analysts are now closely monitoring every speech and statement.
The sudden support for cuts from people in Powell's own circle has raised new doubts about how much control he really has over the committee's direction, and whether Trump might act on growing speculation he will replace him next year.
At this point, the Federal Reserve is divided. Its chairman insists on holding interest rates steady, while some governors insist on cutting them. The market is hedging. And Trump, once again, is making statements from his digital rooftop.
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