There’s been a bit of a kerfuffle among Federal Reserve Board officials over the forecast for interest rate cuts.
These are the same rate cuts that rattle and roll every aspect of the U.S. economy right down to your household.
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These interest rates are having a moment from consumer wallets and price increases to mortgage rates and housing starts to Treasury bonds and investments.
Related: Fed official sends shocking message on interest rate cuts
Millions of Americans – including President Donald Trump – want immediate relief.
Federal Reserve Board Chair Jerome Powell urges patience as the full impact of Trump’s tariffs and trade wars pass through inflation and employment numbers over the next three months.
Hours after a Fed governor called for more immediate action in a move that gobsmacked Fed and market watchers, another Fed official chimed in with an opinion.
Fed interest rate decision reset 2025 forecast
For the sixth month in a row, the central bank opted to hold the Federal Funds Rate steady at 4.25%-4.50% at its June meeting last week.
Fed Chair Jerome Powell said the expected lagging impact of tariff inflation on the economy’s supply chain, while likely short term, led to the prudent waiting period.
Trump’s proposed tariffs – essentially an external sales tax to U.S. trading partners that we pay one way or another – face a July 9 deadline.
Data shows the overall U.S. economy is “solid,’’ Powell said at the June meeting. The Fed’s biannual Monetary Policy Report to Congress, released June 20, supports this assertion.
“Growth in private domestic final demand was moderate, reflecting a modest increase in consumer spending and a jump in capital spending,” the report said. “However, measures of household and business sentiment have declined this year amid concerns about the effects of higher tariffs on inflation and employment as well as heightened uncertainty about the economic outlook.’’
The Fed’s dual mandate: prudent monetary policy that keeps both inflation and unemployment relatively stable to avoid a recession or worse.
The Federal Open Meeting Committee controls the Federal Funds Rate, which banks charge each other overnight to borrow money.
The funds rate is tied to the cost of borrowing money for consumers, investors and businesses.
Related: Forget tariffs, Fed interest rate cuts may hinge on another problem
The Federal Open Meeting Committee said July 18 it would keep the Federal Funds Rate at 4.25% to 4.50% for June.
Data over the next few months will indicate if the Fed will decide on two or fewer rate cuts in 2025, portfolio manager Chris Versace said in a TheStreet Pro post after the FOMC released its quarterly “dot plot” on July 18.
The Fed continues “to telegraph that two 25-basis point rate cuts remain on the table for this year,’’ Versace wrote.
Both Fed and market watchers forecast the next probable rate cut could appear at the September FOMC meeting.
Fed’s Daly issues strong interest rate message
San Francisco Federal Reserve Bank President Mary Daly concurred with the FOMC and Powell.
In a July 20 interview with CNBC, Daly said monetary policy is in “a good place.”
Inflation is coming down, which is “great news for American families.”
Daly took the long walk with Powell’s slower stance.
“Rate cuts might be necessary in the fall,’’ Daly said. The FOMC meets in September.
In a contrarian viewpoint, Fed Governor Christopher Waller, a Trump appointee, said the same day that a cut could come as early as July.
The current economic data “has been fine” and the tariff inflation bump may follow historical trends to prove transitory in the short term, Waller said in a CNBC interview.
“I don’t think it’s going to be very big,” Waller said. His July forecast shocked Fed and market watchers.
Both he and Daly agreed attention must be paid to the tariff impact on the jobs market.
More Federal Reserve:
- Fed interest rate cut decision resets forecasts for the rest of this year
- Federal Reserve prepares strong message on long-term interest rates
- Fed official revamps interest-rate cut forecast for this year
“Additional softening could turn into weakening. We don’t want to see that,” Daly said.
If it does, Waller said the Fed could pause the rate cut process.
“We’ll be very interested in the inflation commentary contained in Monday’s Flash June PMI data from S&P Global,’’ Versace wrote in his TheStreet Weekly Roundup. “Should those comments for input and output prices show rising pressures compared to April and May, they would support Powell’s assertion for what’s to come.’’
The widely watched CME FedWatch tool puts the likelihood of a July cut in the Federal Funds Rate at 10.3%
The Fed last cut the Federal Funds Rate in December 2024.
The FOMC’s next meeting is July 29-30, 2025.
Related: Fed official revamps interest-rate cut forecast for rest of this year
