Fed Officials Lean Against Cutting Interest Rates in July

Federal Reserve officials signaled this week that interest rate cuts are unlikely to happen immediately, despite growing signs that inflation is easing. Policymakers say they need more time to be certain that recent tariff-driven price increases won’t result in a lasting inflation problem.

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Earlier in the week, some market watchers grew hopeful when Fed Governors Christopher Waller and Michelle Bowman indicated they’d be open to lowering rates as soon as the July 29–30 meeting, provided inflation remains under control. But that optimism was quickly dampened as nearly a dozen central bank officials—including Fed Chair Jerome Powell, New York Fed President John Williams, and San Francisco Fed President Mary Daly—made it clear that patience is still the guiding principle.

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Speaking Thursday on Bloomberg Surveillance, Daly acknowledged that there’s mounting evidence suggesting tariffs might not cause a prolonged spike in prices. However, she cautioned that this doesn’t mean the Fed is ready to act soon. Instead, she maintained her long-held view that any rate adjustments would likely come in the fall.

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“My baseline outlook has consistently been that rate cuts would begin in the fall, and nothing has changed that so far,” Daly said.

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Inflation has indeed cooled more than expected in recent months. The Fed’s preferred inflation gauge—the core personal consumption expenditures (PCE) index—rose just 2.1% in April, only slightly above the central bank’s 2% target. That has encouraged some speculation that rate cuts may not be far off. But Fed officials remain cautious.

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Labor market data released Thursday showed a mixed picture. Continuing unemployment claims reached their highest level since November 2021, marking a six-week trend of more people staying out of work for longer periods. However, initial jobless claims for the week ending June 21 actually declined. Daly acknowledged the labor market is slowing but said she doesn’t yet see significant red flags. She added that the Fed’s current policy stance remains appropriate for now.

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Two other Fed officials echoed similar caution in separate remarks Thursday. Richmond Fed President Tom Barkin, speaking to the New York Association for Business Economics, said tariffs are likely to exert upward pressure on prices. Given the uncertainty surrounding their effects, Barkin urged the Fed to be patient before making any policy changes.

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“There’s no advantage in moving too quickly in either direction,” Barkin said. “The economy remains resilient, giving us time to watch and assess developments before we decide our next step.”

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Meanwhile, Chicago Fed President Austan Goolsbee also acknowledged the positive inflation data but struck a cautious tone. He said the Fed would consider rate cuts only if inflation continues moving clearly toward the 2% goal and broader economic uncertainties begin to ease.

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“I’m encouraged by the recent data, and I hope the inflation effects from tariffs stay contained,” Goolsbee said. “But we still need more confidence before making any decisions.”

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Fed Chair Jerome Powell added his voice earlier in the week during testimony before Congress. He noted that under different circumstances—particularly without the unpredictability caused by tariffs—the Fed might already have begun cutting rates. However, the current outlook remains too uncertain to justify an immediate move.

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“If it weren’t for the lack of clarity around future price pressures, we’d probably already be reducing rates,” Powell told lawmakers. “For now, we’re in a good position to wait and see how the economy evolves before making any policy changes.”

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Powell also emphasized that the actual effects of tariffs will depend heavily on their scale and scope once fully implemented. Until there’s more clarity on their long-term impact, the Fed will hold off on adjusting its policy stance.

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Overall, the message from the central bank this week was consistent: While inflation is moving in the right direction, the Fed won’t rush to cut interest rates until it has greater confidence that inflation will remain subdued and that the economic landscape is stable. Though markets may be eager for relief, policymakers are stressing patience, preferring to wait for more definitive signs before taking action.

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