Can interest rates be cut in July? Understand the "historical-level split" of the Federal Reserve in one image

This week, Wall Street's attention is focused on the Federal Reserve, as public statements from several officials reveal a "historic level of division" within regarding the future direction of monetary policy, with the risk of a rate cut in July significantly increasing.

According to news from the Chase Trading Desk, Citibank's latest research report shows that two governors (Waller and Bowman) conditionally support a rate cut in July, while hawkish official Harker is cautious about rate cuts this year.

Federal Reserve Chairman Jerome Powell represents the "centrist view," stating that he will observe data "throughout the summer" to determine the timing of a rate cut.

The market currently expects a rate cut of about 70 basis points this year, with Citibank maintaining its basic expectation for a rate cut in September, but acknowledging that the probability of a rate cut in July has increased.

Dovish Voices Strengthen, Bowman and Waller Speak First

Citibank states that the previously hawkish Federal Reserve governor Bowman has shown a "significant dovish shift." She indicated that the upcoming June employment and inflation data might be enough to persuade her to support a rate cut in July. In her speech on June 23, she stated:

"If inflation pressures remain controlled, I will support lowering the policy rate at the next meeting to bring it closer to neutral and maintain a healthy labor market."

Bowman believes that inflation seems to be consistently moving towards the 2% target, and the overall impact of trade policy on core PCE inflation may be minimal. She also pointed out that, given recent weak spending and signs of a fragile labor market, the downside risks to employment goals may soon become more pronounced.

Citibank research believes that Bowman may now become one of the committee members supporting three rate cuts this year in the "dot plot."

Another Federal Reserve governor, Waller, is "consistently more dovish," and he has also publicly expressed support for the possibility of a rate cut in July, believing that the impact of tariffs on inflation will be "more moderate and temporary." In an interview on June 20, he stated:

"I think we could take action as early as July. That's my view; whether the committee agrees is another matter."

Additionally, Chicago Fed President Goolsbee has also returned to his previous dovish stance. Following recent slowing inflation data, he reiterated that the economy is on a "golden path," and the Federal Reserve should cut rates later this year.

Hawks Hold Their Ground, Harker Opposes Rate Cuts

However, not all officials agree with an early rate cut. Citibank believes that Cleveland Fed President Harker stands at the "hawkish extreme." He is more focused on inflation rather than the labor market, believing that the current policy rate may be close to neutral.

Harker emphasized that, given the current resilience of the economy, the risks of maintaining the current policy stance are low, and he "does not see the economy weakening to the point that immediate rate cuts are necessary." He even suggested that to balance the risks posed by high inflation and a slowing labor market, it may be necessary to keep the policy rate stable for a period of time

Powell Mediates, Waiting for June and July Data

Citigroup stated that Federal Reserve Chairman Powell represents the "centrist view." In his testimony before Congress this week, he reiterated that policy rates could have been lower if not for concerns about tariffs.

Powell indicated that he will closely monitor "summer" data to decide when to cut interest rates, particularly the impact of tariffs on inflation data for June and July.

He hinted that this might point to a rate cut in September rather than July. He emphasized that there is currently no rush to cut rates, as "the economy remains strong, and the labor market is also robust." Most other Federal Reserve officials generally agree with Powell's "wait for data" plan.

Current market pricing shows that the Federal Reserve is expected to cut rates by about 70 basis points this year. Citigroup's baseline forecast is that the Federal Reserve will first cut rates by 25 basis points in September and continue to cut rates throughout this year and next, expecting the policy rate to fall to 3.0-3.25% by March next year.