Fed Leaders at Odds: Will the Rate Cut Come in July or September?

Powell: “We must watch the impact of tariffs”… Upholds cautious stance on rate cuts

Bowman, Waller: “Rate cut possible in July”

Trump-appointed Fed officials press for early rate cuts

A clash is emerging within the U.S. central bank (Fed) over the timing of a rate cut between Chairman Jerome Powell (the leader) and Vice Chair Michelle Bowman (the second-in-command). Chairman Powell maintains that the Fed should wait carefully until a slowdown in inflation clearly appears in the data, whereas Vice Chair Bowman has raised the possibility of a rate cut as soon as July. Some suggest that Vice Chair Bowman's advocacy for a cut reflects the will of President Donald Trump, who supports her and is pushing for a rate reduction.

“Wait” vs “Rate Cut in July”

On the 24th (local time) at the semiannual monetary policy hearing of the House Financial Services Committee, Chairman Powell stated, “The policy should be maintained until it becomes clearer how tariffs will impact prices.”

In his speech submitted to Congress, Powell assessed, “U.S. economic growth is solid, and the labor market is close to full employment.” However, he pointed out that inflation is still above the Fed's 2% target and that the impact of President Donald Trump’s tariff policy remains uncertain.

Notably, Powell reiterated his previous position, saying, “We will not consider policy adjustments until we have more information on the direction of the economy.”

He also appeared before the House Financial Services Committee, upholding that evidence, in the form of summer data, is needed to show that tariffs are not causing sustained inflation. He remarked, “We're simply trying to proceed carefully and cautiously,” adding, “I believe that's the best thing for the people.”

Currently, financial markets see ‘a rate cut in September’ as more likely. According to CME FedWatch, the probability of a rate hold in July is 81%, while the probability of a 0.25% cut in September stands at 69%. The likelihood of a rate cut in September has risen by 16 percentage points over the past week.

Conversely, Vice Chair Michelle Bowman, considered the most hawkish (preferring policy tightening) among Fed officials, indicated on the previous day that a rate cut could come as early as July. At a keynote speech at a conference hosted by the Czech National Bank in Prague, she said, “If inflationary pressures remain subdued, I would support a rate cut at the next (July) meeting at the earliest.”

She emphasized that no significant economic impact has been seen from trade conditions, explaining that the inflationary pressure on goods due to tariffs is offset by other factors.

Reflecting Trump’s Will?

Until as recently as February, Vice Chair Bowman had openly displayed hawkish views, warning of potential upside risks to inflation. However, given her recent push for early rate cuts, there is speculation that she is reflecting President Trump’s intentions.

Appointed as a Fed Governor in 2018 by President Trump, Bowman was recently re-nominated as Vice Chair for Supervision following Trump’s return to office, officially taking her post earlier this month.

Previously, Fed Board Member Christopher Waller also said in a CNBC interview on the 20th, “We should start considering a rate cut at the July meeting.” Waller was also appointed to the Fed Board in late 2020 through President Trump’s nomination. Recently, along with Treasury Secretary Scott Besant, National Economic Council Chairman Kevin Hassett, and former World Bank President David Malpass, he has been mentioned as a candidate for the next Fed Chair.

Accordingly, suspicions have arisen that both Vice Chair Bowman and Board Member Waller are supporting President Trump’s push for a rate cut. Early that morning, Trump criticized Chairman Powell on Truth Social, saying, “I hope Congress properly deals with this foolish and stubborn man,” and “We will pay the price for his incompetence for years.”

New York=Shinyoung Park, Correspondent nyusos@hankyung.com