The divergence over the Federal Reserve's interest rate cuts intensifies: Bostic warns that tariffs may lead to long-term inflation, maintaining the expectation of one rate cut this year

According to the Zhitong Finance APP, Raphael Bostic, President of the Federal Reserve Bank of Atlanta, stated that he still maintains the expectation of a possible interest rate cut this year, but emphasized the need to focus on the potential impact of the Trump administration's tariff policy on inflation. In a virtual discussion organized by the Florida Chief Financial Officers Association, Bostic pointed out that the most critical issue currently is determining whether the price increases caused by tariffs are a "one-time event" or will trigger more lasting structural changes. He candidly expressed skepticism about "whether this round of tariffs fits the typical characteristics of one-time, temporary inflation."

In contrast to the views of Federal Reserve Governor Christopher Waller, who believes that the impact of tariffs on inflation can be ignored and is a short-term phenomenon, it is noteworthy that Waller was the only official to support a 25 basis point rate cut in last week's Federal Reserve vote to maintain interest rates.

Bostic emphasized that tariff adjustments are not a single event where the outcome is clear upon waking up one day; their frequent changes actually prolong the market's concerns about price trends, potentially raising inflation expectations. He further predicted that the structural changes brought about by supply chain restructuring may last until 2026, increasing the risk of long-term inflation pressure.

Currently, the Federal Reserve maintains a stable benchmark interest rate, continuing the policy tone established since the beginning of the year. Federal Reserve Chairman Jerome Powell recently stated that although there are downside risks to the economy, the labor market remains robust, and officials need to gather more inflation and employment data before the September meeting.

However, the latest economic data shows that employment growth has significantly slowed in the three months ending in July, and consumer spending has also shown signs of weakness, leading to questioning voices regarding the Federal Reserve's wait-and-see attitude.

In this regard, Bostic acknowledged that the July employment report was "surprising," and the revised data reflects economic volatility. However, he emphasized that there is still ample reason to believe that the fundamentals of the U.S. economy remain solid. This discussion around balancing policy pace and economic reality is becoming a key consideration for the Federal Reserve's next decision-making.

It is worth mentioning that three Federal Reserve policymakers expressed concerns about the ongoing weakness in the U.S. labor market on Wednesday and hinted that a rate cut may be initiated at the September meeting. Among them, Mary Daly, President of the Federal Reserve Bank of San Francisco, pointed out at an event in Anchorage, Alaska, that the current labor market has shown signs of weakness, and further deterioration would necessitate policy adjustments.

Additionally, Federal Reserve Governor Lisa Cook specifically noted when analyzing the July employment report in Boston that the cumulative adjustment of employment data over the past three months has been nearly 260,000 jobs (with only 73,000 jobs added in July), and such a significant revision is often a typical characteristic of economic cycle turning points.

Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, more directly stated in an interview: "The economy is slowing, and it is appropriate to initiate adjustments to the federal funds rate in the short term." He maintained his previous prediction that two rate cuts will be implemented before the end of 2025 The latest labor market data shows that the unemployment rate rose slightly from 4.1% in June to 4.2% in July, with significant slowing in job growth. Mary Daly, President of the Federal Reserve Bank of San Francisco, emphasized that the current policy focus needs to strike a balance between controlling inflation and stabilizing employment. Although achieving the 2% inflation target remains a challenge, short-term factors such as tariffs are unlikely to change the direction of monetary policy.

According to the schedule of the Federal Reserve's interest rate meetings, policymakers will hold the next meeting in September, with two more meetings planned for 2025. The market is generally concerned whether this meeting will initiate a rate-cutting cycle to address the pressures of economic slowdown