Despite intense pressure from President Trump to cut interest rates, Federal Reserve policymakers are expected to keep rates unchanged when they conclude a two-day meeting tomorrow. But Fed officials are divided on rate policy, and the meeting is also expected to produce a rare public display of divisions among the central bankers.
“Two Fed governors, Christopher Waller and Michelle Bowman, have signaled that they could dissent this week, preferring to cut rates right away,” The Wall Street Journal’s Nick Timiraos reports. “Such dissents will likely generate headlines because it has been five years since any rate-setting meeting had more than one dissent. But those dissents will underscore—rather than challenge—the prevailing caution among most Fed officials about moving too quickly.”
Timiraos notes that Fed officials are divided into roughly three camps on the outlook for rate cuts. A group of centrists waiting to see more data on the strength of the economy and the potential for inflation might be ready to signal a September rate cut. But they are flanked on one side by governors ready to cut rates now and on the other side by officials concerned that inflation could still rise due to Trump’s tariffs, necessitating more caution before signaling a rate cut. “What is dividing colleagues right now reflects differences in risk management—how much weight to give the possibility of moving too early versus too late, and which type of mistake would be harder to fix,” Timiraos writes.
While that debate goes on, the pressure from Trump and his allies has only ratcheted higher — though, as Colby Smith of The New York Times reports, that effort to strong-arm Fed Chair Jerome Powell may be counterproductive, as it might lead the Fed to wait longer before cutting.
“The irony is that the administration is shifting the odds against it that the Fed will move in a manner that accords with what it wants,” David Wilcox, a senior fellow at the Peterson Institute for International Economics and a former leader of the Fed’s research and statistics division, told the Times. “A Fed that is attuned to guarding its independence will want the case for cutting to be just a little clearer and a little more unambiguous than if the administration had remained silent.”
The bottom line: From the White House to Wall Street, Fed watchers will be looking for signals that a September rate cut is coming and for indications of how the Fed sees Trump’s tariffs playing out.