The Federal Reserve minutes for the meeting held in June, released on Wednesday (July 9), indicated that most officials expect an upcoming rate cut, but there are three different views on the path of rate cuts.
During the June meeting, all members of the Federal Open Market Committee agreed to keep the federal funds rate in the range of 4.25% to 4.5%, but their views on the future rate outlook are diverging.
The minutes stated, “Most participants believed that lowering the federal funds rate target range might be appropriate this year.” Officials considered the inflation pressure caused by tariffs to be “temporary and mild,” while noting that economic growth and employment may weaken.
The dot plot released after the June FOMC meeting showed that out of the 19 officials, 10 expect at least two rate cuts before the end of the year. However, seven policymakers anticipate no rate cuts in 2025, while two predict one rate cut.
The Fed has held rates steady for four consecutive times, sparking criticism once again from President Trump, who has repeatedly called for rate cuts and warned of firing the Fed chair.
The minutes revealed that the Fed is divided into three camps, with “a few” officials willing to consider a rate cut at the meeting on July 29-30, while “some” officials believe that no rate cut this year would be more appropriate.
At the same time, “several” officials noted that the current overnight fund rate “may not be far” from the neutral level, suggesting that there may be only a few rate cuts in the future, but not in July. These officials pointed out that in a “resilient” economic environment, the inflation rate remains above the 2% target.
According to CNBC, in Fed terms, “some” officials typically represent a larger number than what “a few” or “a few” officials do.
Since the June meeting, Fed officials Waller and Bowman have publicly stated that they might support a rate cut at the July meeting if inflation remains manageable.
The updated forecasts in the minutes show that officials expect two rate cuts this year and three in the next few years. However, the disagreement on the magnitude of rate cuts is reflected in the dot plot.
The minutes from the June meeting emphasized that the rapidly changing economic policy environment has made the Fed’s policy decisions more complex. Trump’s broadening of tariffs on U.S. trading partners, along with policy changes in taxes, immigration, and regulation, has heightened economic uncertainty.
The minutes noted, “Participants felt that amid evolving trade policies, other government policies, and geopolitical risks, the uncertainty surrounding the economic outlook remains elevated, although overall uncertainty had diminished compared to the previous meeting.”
Current economic data has yet to show widespread effects from tariffs, prompting policymakers to debate how and to what extent tariffs will impact prices.
The upcoming significant data release is the U.S. June Consumer Price Index (CPI), set to be announced on July 15. The May CPI only rose by 0.1%, despite most inflation indicators remaining above the Fed’s 2% target.
The minutes stated, “Many participants noted that if trade agreements could be reached quickly, if businesses could swiftly adjust supply chains, or if businesses could mitigate the impact of tariffs through other adjustments, then the ultimate impact of tariffs on inflation might be more limited.”
President Trump originally set July 9 as the deadline to reach trade agreements with multiple countries, but only three agreements have been reached so far. He has issued tariff letters to over 20 countries, setting August 1 as the final deadline.
Meanwhile, the significant slowdown in U.S. job growth is also one of the reasons for the Fed’s decision to hold rates steady, despite the surprising slowdown in the pace of non-farm payroll jobs. In June, non-farm payrolls increased by 147,000, below the market’s expectation of 110,000, but the unemployment rate unexpectedly fell to 4.1%.