Regarding interest rate cuts, internal divisions within the Federal Reserve are becoming increasingly pronounced

The Federal Reserve is forming two distinctly different camps: the dovish camp advocates "ignoring" the short-term impact of tariffs on inflation to pave the way for interest rate cuts, while the hawkish camp insists that inflation risks may be more persistent than expected. This internal rift could lead the market to reassess expectations for interest rate cuts this year. The core of this policy divergence lies in how to evaluate the lasting impact of Trump's tariff policy on inflation.

Dovish Camp: Tariff Shock is Just a "Temporary Storm"

Reports indicate that the Federal Reserve's prominent governor, Christopher Waller, has clearly aligned with the dovish camp. On Sunday evening, Waller emphasized during a speech in Seoul that the inflation caused by tariffs will not be persistent.

Given that I believe any inflation caused by tariffs will not be persistent, and inflation expectations remain anchored, I support ignoring any impact of tariffs on recent inflation when setting policy rates.

Waller maintains that the impact of tariffs on inflation will be temporary, primarily manifesting in the second half of 2025. He pointed out that, unlike during the pandemic, there is currently no labor shortage, tariffs have not caused large-scale disruptions in the supply chain, and there are no large-scale government stimulus measures like those during the pandemic.

This position is highly consistent with the White House's view—that any price increases will be temporary. Waller believes that if inflation continues to move towards the Federal Reserve's 2% target, the job market remains robust, and effective tariff rates stabilize around the expected 15%, he would support interest rate cuts later this year.

Chicago Fed President Austan Goolsbee also expressed a similar view, stating that tariff disruptions are like "dust in the air," but the fundamentals of the interest rate cut path remain unchanged.

I still believe that fundamentally we are still on that path to cut rates.

Hawkish Counterattack: Inflation Risks Should Not Be Underestimated

However, hawkish forces within the Federal Reserve are gathering to counterattack. Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan have both clearly stated their support for maintaining interest rates unchanged.

Kashkari stated last week that he believes trade negotiations may take months or even years to resolve, and tariff increases could lead to retaliatory measures from trade partners. Therefore, he hopes to keep interest rates stable until the tariff path and its impact on prices become clearer.

Logan has sent a stronger signal, hinting at resistance to Trump's calls for interest rate cuts. She stated that interest rates are currently in a "good position" and it may take "quite a long time to know whether the risk balance is shifting in one direction."

Logan warned that excessive interest rate cuts would trigger an inflation spiral.

In the short term, the Federal Reserve can always stimulate employment by cutting rates. People may temporarily enjoy this approach, but over time, excessive rate cuts will trigger an inflation spiral.

Core Controversy: The Durability of Tariffs Remains Unresolved

Reports indicate that the Federal Reserve's policy outlook may hinge on the scale and durability of tariffs. The minutes from the Fed's May meeting show that some officials believe that imposing tariffs on intermediate goods could lead to a more sustained rise in inflation. Trump's "steel tariffs" have further exacerbated these concernsAccording to a report by Xinhua News Agency, U.S. President Trump announced on May 30 that he would raise the tariffs on imported steel and aluminum from the current 25% to 50%.

However, some opinions suggest that factors such as concessions in trade negotiations and consumer price sensitivity may offset inflationary pressures