Rate Cuts Debate Splits Fed Officials Over Economic Uncertainty

Fed officials remain divided on rate cuts as tariff risks and mixed data cloud the economic outlook heading into late 2025.

June 26, 2025

Valerija I.

Federal Reserve Chair Jerome Powell signaled a cautious stance on rate cuts during a congressional hearing, citing uncertainty over inflation impacts from new tariffs.
While some Fed officials favor cutting rates as early as the next meeting, others warn of inflation risks tied to global trade tensions.
The central bank appears unlikely to cut rates before September, as policymakers await clearer data on inflation and labor markets.

Key Takeaways

Mixed Messages in a Murky Economy

Federal Reserve Chair Jerome Powell struck a cautious tone in testimony before the House Financial Services Committee on Tuesday, reflecting growing internal division at the central bank over when to cut interest rates, per GlobeSt.

While Powell acknowledged that recent data could justify a cut, the potential for rising tariffs to drive inflation has given the Fed pause.

“There’s no preset path,” Powell told lawmakers, suggesting that the Federal Open Market Committee (FOMC) will wait to see if price pressures from tariffs subside before moving forward. The next rate decision is due in July, though market watchers increasingly see September as the more likely window for action.

Officials Diverge on Path Forward

Fed Vice Chair for Supervision Michelle Bowman said this week that she would support a rate cut “as soon as our next meeting,” citing the need to align policy with a neutral stance and support the labor market. Meanwhile, other policymakers remain concerned about how tariffs could push inflation higher.

Governor Christopher Waller, in a recent speech, outlined several potential inflation scenarios depending on how businesses respond to new tariffs. His modeling suggested inflation could spike to as high as 5% if companies pass costs on to consumers, or settle around 3% if businesses absorb some of the impact. Either case could delay or complicate the Fed’s rate-cut timeline.

Looking Ahead

Chicago Fed President Austan Goolsbee offered a more dovish view, noting that inflation tied to tariffs hasn’t materialized yet. If that remains true, it could clear a path for rate reductions later this year.

For now, the central bank remains in wait-and-see mode. With uncertainty over tariffs, inflation, and the labor market, the Fed is unlikely to act until at least September—barring a significant shift in economic indicators.