Most Fed members eye rate cuts this year, but splits emerge on next steps

Published 09/07/2025, 19:28
Updated 09/07/2025, 19:32
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Investing.com -- The majority of Federal Reserve policymakers continued to believe that the central bank will cut rates this year, though divisions are starting to form on the monetary policy path ahead, with a couple of members eyeing cuts as soon as July, while some see no need for any easing this year, according to the minutes of the Federal Reserve’s Jun. 17-18 meeting released Wednesday.           

"Most participants assessed that some reduction in the target range for the federal funds rate this year would likely be appropriate," The Fed minutes showed. But there were divisions on the path ahead with a "couple" of participants signaling a for a rate cut as soon as the July meeting, while "some participants," saw the most likely decision would be to keep the pause in place, citing inflation concerns.

The signs of division among Fed members isn’t surprising. Fed Governor Christopher Waller said recently that he doesn’t expect tariffs to boost inflation significantly so policymakers should be looking to lower interest rates as early as next month. Fed Vice Chair Michelle Bowman, meanwhile, has also been vocal about sooner cuts, saying last month that she would back a July rate cut should "inflation pressures remain contained."

Fed chair Jerome Powell, however, continues to back the wait and see approach to rate cuts, citing uncertainty around policy impacts from Washington on the economy and inflation. The Fed chief’s unwillingness to cave into demand from President Trump to lower rates has drawn the president’s ire on several occasions.  Powell has suggested that the tariffs have played a central role in keeping rate cuts at bay. 

“In effect, we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs,” Powell said at European Central Bank forum in Sintra, Portugal on July 1.

At the conclusion of its June meeting, the Federal Open Market Committee, or FOMC, voted to keep its benchmark rate to a range of 4.25% to 4.5%, but expected fewer cuts next year. For 2026, the voting Fed members projected rates to fall to 3.6% in 2026, up from a prior forecast of 3.4% in March. For 2027, the committee revised its policy rate outlook higher, seeing rates falling to 3.4%, up from 3.1% previously. 

Recent economic data including the better-than-expected June jobs report appear to support the Fed’s chair patient stance. 

"A slower trend in payrolls isn’t creating more labor market slack. With the labor market still in balance and adjusting gradually to new policies, the FOMC is not forced into early cuts. We continue to see the Fed on hold, waiting for inflation and spending data to show tariff effects," Morgan Stanley (NYSE:MS) said in a recent note.

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