The minutes of the Federal Reserve's June meeting showed that central bank officials were divided on how eager they should be to lower interest rates, amid concerns about inflation resulting from tariffs versus signs of weakness in the labor market and the continued strength of the economy.
The minutes of the Federal Open Market Committee meeting held on June 17 and 18, released on Wednesday, revealed that policymakers largely maintained a 'wait and see' stance regarding future interest rate movements. The meeting concluded with a unanimous decision to keep the benchmark interest rate in a range of 4.25% to 4.5%, the level maintained since December 2024.
However, discussions at the meeting also showed an increasing divide on how to proceed with monetary policy.
According to the minutes of the meeting: 'Most participants felt it would likely be appropriate to lower the target interest rate range this year,' noting that inflationary pressures resulting from tariffs may be 'temporary and limited,' while economic growth and job opportunities may decline.
However, the extent and pace of those cuts was a matter of debate.
Opinions ranged from officials who said the first rate cut could come as early as this month, to others who saw no need for any cuts this year. While the minutes did not name names, board members Michelle Bowman and Christopher Waller had previously stated that they see the possibility of a rate cut at the July 29-30 meeting if inflation remains under control.
In contrast, several officials saw the current interest rate as 'not straying too far' from the neutral level, which means that the number of cuts may be limited due to inflation remaining above the 2% target alongside what they described as the economy's 'resilience'.
It is known that in Federal terminology, 'some' means a larger number than 'several'.
During the meeting, Federal officials adjusted their expectations for interest rate cuts, anticipating two cuts in 2025, followed by three more cuts in the subsequent two years.
This comes at a time when U.S. President Donald Trump is pressuring Fed Chair Jerome Powell and his colleagues for a significant and swift interest rate cut. Trump has publicly attacked Powell and on his platform 'Truth Social,' even calling for his resignation.
However, Powell repeatedly emphasized that he would not yield to political pressures in monetary policy decisions, reaffirming his commitment to a cautious approach, noting that the strong economy and uncertainty about inflation allow the Fed to maintain its current stance until more information becomes available.
According to the minutes of the meeting: 'Although uncertainty regarding inflation and economic forecasts has decreased, participants felt that a cautious approach to adjusting monetary policy remains appropriate.'
Officials also warned that the Fed may face 'tough trade-offs' if high inflation persists longer while employment deteriorates, indicating that they will make decisions based on how far each indicator (inflation or employment) is from its target.
Since the meeting, Trump has continued his negotiations with the United States' key trade partners, amid almost daily changes in tariff policies. He first announced the imposition of tariffs on April 2, then changed the deadlines for reaching agreements, the latest being a series of messages sent to foreign leaders notifying them of high tariffs unless urgent actions are taken.
However, recent data suggests that tariffs have not yet translated into significant price increases.
The consumer price index rose by only 0.1% in May, and although inflation indicators remain above the 2% target, recent surveys show a decline in public concerns about long-term inflation.
The meeting clarified that many participants noted that the ultimate impact of tariffs on inflation could be limited if trade agreements are reached soon, or if companies can quickly adjust supply chains, or if they can absorb costs through other profit margins.
At the same time, job growth has clearly slowed, although the rate of non-farm job increases remained above expectations. June saw an increase of 147,000 jobs, compared to expectations of 110,000, while the unemployment rate unexpectedly fell to 4.1%.
But conversely, consumer spending has significantly slowed, with personal expenditures declining by 0.1% in May, and retail sales dropping by 0.9%.