Topline
The Federal Reserve still believes tariffs complicate the interest rate cut picture, even as President Donald Trump attacks the central bank.
Federal Reserve Chairman Jerome Powell has been one of the top punching bags of Trump's second term.
“Most” Fed staff believe the central bank will lower interest rates in 2025, according to minutes released Wednesday afternoon from the June 17-18 meeting of the Federal Open Market Committee, the Fed’s policy-setting panel which opted to hold interest rates at the 4.25% to 4.5% range they’ve sat since December.
A “couple” of the policymakers expressed openness to a July cut.
Yet “most” central bankers also judged “tariffs could have more persistent effects on inflation” and thus cause more restrictive monetary policy, according to the minutes.
All members of the FOMC supported holding rates in June.
“Many participants noted that the eventual effect of tariffs on inflation could be more limited if trade deals are reached soon,” read the minutes, nodding to a potential shred of optimism for those looking for a significant Fed pivot.
The FOMC “saw the risk of a recession as less” than in March.
The minutes reveal more closely the behind closed doors thinking between the U.S.’ top policymakers with the Fed under barrage from the White House. The Fed’s decision to hold rates steady throughout 2025 thus far has drawn the ire of Trump, who has repeatedly called for Fed Chair Jerome Powell’s resignation as Trump demands rate cuts to ignite his growth-focused agenda. To Trump’s point, recent economic data seems to support the case for rate cuts, considering inflation has stayed flat since the central bank began to cut rates last year, according to the Fed’s preferred measure, but Fed policymakers and most major economists warn Trump’s tariffs will likely cause a significant boost to consumer prices in coming months. Median forecasts from the central bank’s June meeting indicate Fed staff expect inflation to climb from 2.7% to 3.1% by December. The Fed’s primary role is setting the target federal funds rate, operating on a dual-mandate system to steady inflation and keep employment robust.
After appointing the now out-of-favor Powell in 2018, Trump will have the opportunity to choose Powell’s successor, with the banker’s term due to expire in May. The prediction market site Kalshi puts former Fed Governor Kevin Warsh as the slight favorite to score the nomination at 27%, followed by Kevin Hassett, director of the National Economic Council, at 26%, Fed Governor Christopher Waller at 20% and Treasury Secretary Scott Bessent at 15%. Hassett and Warsh have both expressed interest in the position, The Wall Street Journal reported Tuesday.