According to Shenchao TechFlow, on July 10, Jinshi Data reported that 'Fed mouthpiece' Nick Timiraos recently stated that a debate is brewing within the Fed on how to deal with the risks posed by Trump’s tariffs, which may end a relatively unified period, with officials potentially diverging on whether new cost increases justify keeping interest rates high.
In recent weeks, Federal Reserve Chairman Powell has hinted that the threshold for interest rate cuts may be lower than it appeared this past spring, although cuts are not expected this month. Instead, Powell has outlined a 'middle path': if inflation data comes in lower than expected or the job market shows slight signs of weakness, this may be enough for the Fed to start cutting rates before the end of summer. This standard is lower than the previously stricter threshold – at that time, amid the significant inflation expectations triggered by larger tariffs, the Fed might have required more obvious signs of economic deterioration before considering a rate cut.
The tariff increase announced by Trump in April exceeded expectations, raising concerns about stagflation due to weakening economic growth and rising prices, disrupting the Fed's plans to resume interest rate cuts this year. However, since then, two developments have prompted a possible shift. First, Trump has lowered some of the most extreme tariff hikes; second, the anticipated consumer price increases related to tariffs have not yet materialized. This presents a critical test for the competing theories regarding whether tariffs will lead to inflation and has sparked internal disagreements on how to manage forecasting errors.