Market expectations fall short? Federal Reserve officials intensively speak out to downplay July rate cut

According to Zhitong Finance APP, recent U.S. economic data has strengthened expectations for policy easing, with traders increasingly betting on a Federal Reserve interest rate cut. However, several Federal Reserve officials this week have made it clear that they need more time to confirm that tariff-driven price increases will not continue to push inflation higher.

The comments from Federal Reserve Governor Christopher Waller and Governor Michelle Bowman over the past week have drawn attention—both hinted that if inflation remains controlled, they might support a rate cut as early as the Federal Reserve meeting on July 29-30. Currently, the interest rate swap market has fully priced in two more rate cuts this year, with a third rate cut probability included in expectations on Thursday.

However, shortly after, nearly a dozen policymakers, including Chairman Jerome Powell, New York Fed President John Williams, and San Francisco Fed President Mary Daly, poured cold water on this idea.

In an interview on Thursday, Daly acknowledged that she has observed increasing evidence that tariffs may not lead to a large-scale or sustained surge in inflation. However, this only left her open to the idea of a "fall rate cut."

Daly stated, "My long-standing baseline expectation is that we may start adjusting interest rates in the fall, and that view has not changed."

This year, the cooling of prices has exceeded market expectations, with the Fed's preferred inflation indicator rising 2.1% in April, just slightly above the central bank's 2% target.

Data released earlier on Thursday also showed that the number of people continuing to claim unemployment benefits surged to its highest level since November 2021, continuing a sharp increase over the past six weeks, indicating that more people are long-term detached from the labor market. Meanwhile, the number of initial unemployment claims for the week ending June 21 decreased.

Daly stated that although the labor market is slowing, there have not been significant warning signs of deterioration, reiterating her view that current monetary policy is in a "good position."

Other Officials' Statements

On Thursday, four other Federal Reserve officials also stated that they are not prepared to support a rate cut at the next meeting.

Boston Fed President Susan Collins said in an interview on Thursday, "We will only have one month of new data before the July meeting, and I want to see more information."

She expects to restart rate cuts later this year. "It could be one rate cut, or it could be more, but ultimately it needs to be determined by the data, and there is no urgency at this time."

Richmond Fed President Thomas Barkin mentioned in a speech at the New York Business Economics Association that he expects tariffs to exert upward pressure on prices. Given the many uncertainties, the central bank should wait for clearer signals before adjusting interest rates.

Barkin stated, "Taking any action too quickly is of little benefit; given the current resilience of the economy, we have time to patiently track developments and wait for the outlook to clarify."

Chicago Fed President Austan Goolsbee stated that if inflation clearly trends toward the 2% target and uncertainty about the economic outlook diminishes, the central bank may restart rate cuts.

"I am optimistic that we have received positive data, and perhaps the impact of tariffs will be contained within manageable limits, but we still need to confirm," he saidFederal Reserve Governor Barr pointed out in a speech prepared for the policy summit hosted by the Cleveland Fed that tariffs are expected to exert upward pressure on inflation. "High short-term inflation expectations, supply chain adjustments, and second-round effects may lead to some persistence in inflation," he said, adding that "tariffs could trigger a slowdown in economic growth and an increase in unemployment."

He further stated, "Given the dual risks the Federal Reserve faces in its dual mandate of price stability and maximizing employment, and the significant uncertainty facing the U.S. economy... monetary policy is in a favorable position, allowing us to observe how the economic situation evolves."

Powell's Position

Powell noted during his testimony before a congressional panel on Tuesday that if it weren't for the uncertainty surrounding tariffs on future prices, the Federal Reserve might have already initiated interest rate cuts based on the downward trend in inflation. However, there is currently no rush to adjust policy.

Powell stated, "The impact of tariffs will depend on their ultimate level; at this moment, we are in a favorable position to wait for more information on the economic trajectory before considering adjustments to our policy stance."