July 10, 2025 – Federal Reserve officials are increasingly aligned on the likelihood of interest rate cuts in 2025, but their June 17-18 meeting minutes reveal a sharp divide over the number and timing of these reductions, reflecting uncertainty driven by President Trump’s trade policies and mixed economic signals. The minutes, released Wednesday, show the Federal Open Market Committee (FOMC) unanimously voted to maintain the federal funds rate at 4.25%-4.5%, a level unchanged since December 2024, as policymakers grapple with tariff-driven inflation risks and signs of labor market softening.
A Cautious Consensus on Cuts
“Most participants assessed that some reduction in the target range for the federal funds rate this year would likely be appropriate,” the minutes stated, citing expectations that tariff-induced inflation pressures may be “temporary and modest” while economic growth and hiring show signs of weakening. The FOMC’s “dot plot” from June projected two quarter-point cuts by year-end, a view reiterated by Fed Chair Jerome Powell, who noted the economy’s “solid position” despite “elevated uncertainty.”
However, the minutes highlight a split among officials. A “couple” of policymakers expressed openness to a cut as early as the July 29-30 meeting if data aligns with expectations, while “some” argued for no cuts at all, citing persistent inflation risks. This divergence stems from conflicting signals: inflation has remained tame despite Trump’s tariffs, but forecasts predict a rise to 3.1% by December from 2.7%, with GDP growth slowing to 1.4% and unemployment climbing to 4.5% in 2025.
Tariffs and Economic Uncertainty
Trump’s aggressive tariff policies, including a universal baseline levy and industry-specific tariffs announced since April, have complicated the Fed’s calculus. Powell acknowledged on June 24 that the central bank would likely have cut rates already absent these trade measures, which are expected to boost inflation “markedly” this year and into 2026. While some tariffs were rolled back or delayed to August 1, uncertainty persists, prompting the Fed to rely heavily on “soft” data like CFO surveys, which signal planned price increases even among firms not directly hit by tariffs.
“Many participants noted that the eventual effect of tariffs on inflation could be more limited if trade deals are reached soon,” the minutes noted, offering a glimmer of optimism. Yet, with Trump’s trade negotiations ongoing and threats of 50% tariffs on the EU, officials remain cautious, wary of stagflation risks—a mix of rising inflation and slowing growth.
Powell’s Balancing Act
Powell has faced intense pressure from Trump, who has called for rates to drop by “at least two to three points” and labeled the Fed chair a “numbskull.” Powell, backed by European Central Bank President Christine Lagarde for his data-driven approach, emphasized a “meeting-by-meeting” stance, refusing to commit to a July cut. “We’re well positioned to wait for more clarity,” he said, citing a still-strong labor market and the need to assess tariff impacts.
Market sentiment aligns with this caution. The CME FedWatch tool indicates an 81% chance of rates holding steady in July, with a 61% probability of a 25-basis-point cut in September. Some analysts, like JPMorgan’s Michael Feroli, predict no cuts until December, while others, like economist Scott Tilley, argue for a full percentage point reduction starting in July, citing a weaker-than-expected economy.
Sentiment on X
Posts on X reflect the polarized views. @RadnamCapital noted the minutes aren’t as dovish as markets suggest, pointing to “some” officials favoring no cuts, while @AndreasSteno highlighted the majority’s support for two cuts despite inflation concerns. @Reuters reported little support for a July cut, aligning with Powell’s reluctance.
Looking Ahead
The Fed’s next meeting on July 29-30 will be pivotal, though a rate cut appears unlikely without clearer data on inflation and employment. With Trump’s tariffs set to shape economic outcomes and Powell’s term as chair nearing its end in spring 2026, the Fed faces a delicate balancing act. As it navigates its dual mandate of stable prices and maximum employment, the central bank’s wait-and-see approach underscores the high stakes of its decisions in an uncertain economic landscape.
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