The Federal Reserve's interest rate cut divergence intensifies, market outlook uncertain
This week, Federal Reserve officials have shown a significant divergence on whether to cut interest rates and the timing of such cuts, bringing more uncertainty to the market.
On July 17, Federal Reserve Governor Waller publicly stated that the interest rate decision in July should involve a cut, citing signs of weakness in the labor market. He emphasized that the current slowdown in economic growth makes a rate cut a necessary measure to address the weak job market. In contrast, San Francisco Fed President Daly also stated that two rate cuts this year are reasonable, but she is concerned that waiting for inflation to fully return to the 2% target could cause unnecessary harm to the economy. Daly also mentioned the impact of tariffs on commodity prices, believing that the Federal Reserve has room to maintain rates as inflation gradually approaches the target.
However, hawkish voices are also increasing. Atlanta Fed President Bostic pointed out that the latest CPI data indicates that inflationary pressures may be rising, calling for the Federal Reserve to adopt a wait-and-see approach. Federal Reserve Governor Cook also stated that considering the stability of the job market and the potential impact of tariffs, it is necessary to maintain the current tightening policy.
The divergence in Federal Reserve policy is reflected in its June economic forecasts: 10 officials expect two rate cuts this year, while 7 believe there will be no rate cuts until 2025. This divergence shows different views within the Federal Reserve regarding inflation and economic prospects, while the market is cautiously betting on the possibility of a rate cut in September.
