Rate Cut: July vs September…Fed's No. 1 and No. 2 Officials at Odds

Powell: "No Need to Rush"

Vice Chair Bowman Hints at July Cut

Chair Powell: "Need to Watch Tariff Effects"

Financial Markets Lean Toward September

Within the Fed, there is a divergence between Chair Jerome Powell and Vice Chair Michelle Bowman over the timing of a rate cut. Chair Powell advocates waiting cautiously until a slowdown in inflation is evident in the data, but Vice Chair Bowman has raised the possibility of a cut as soon as July. Some suggest that Bowman's push for a rate cut reflects the preferences of former President Donald Trump, who supports her.

On the 24th (local time), at the House Financial Services Committee’s semiannual monetary policy report hearing, Chair Powell said, "We should maintain policy until we can more clearly understand how tariffs will impact prices." In his statement to Congress, he assessed, "The U.S. economy’s growth is robust, and the labor market is near full employment." However, Powell noted that inflation remains above the Fed’s 2% target and that it is unclear what impact Trump’s tariff policies will have.

Chair Powell repeated, "I won’t consider a policy adjustment until we have more information on the economic outlook." He also maintained his long-standing view before the House Financial Services Committee that any evidence showing tariffs aren’t causing sustained inflation should be corroborated by data over the summer. "We are trying to approach this carefully and cautiously," he said. "That’s what I believe is best for the people."

Currently, financial markets see a higher probability of a rate cut in September. According to CME FedWatch, the probability of no change in July is 81%, while the probability of a 0.25% cut in September is 69%. The likelihood of a September cut has increased by 16 percentage points from a week ago.

By contrast, Vice Chair Bowman, considered the most hawkish among Fed officials, signaled the possibility of a rate cut as early as July, attracting attention. At a keynote address at a conference hosted by the Czech National Bank in Prague, she stated, "If inflationary pressures remain subdued, I would support a rate cut as soon as at the next (July) meeting." She also emphasized that she has not seen meaningful economic impacts resulting from trade: upward pressures on goods prices from tariffs are being offset by other factors.

Up until February this year, Vice Chair Bowman had maintained a hawkish stance, warning that there were still risks of inflation reaccelerating. However, with her recent call for an early rate cut, analysts say she is now reflecting Trump’s preferences. Vice Chair Bowman was first appointed as a Fed governor in 2018 upon Trump’s nomination, and after Trump’s return to office this year, was renominated as vice chair for supervision, officially taking up the post earlier this month.

Fed Governor Christopher Waller also remarked in a CNBC interview on the 20th that "considering a rate cut at the July meeting should begin." Waller was also appointed as a Fed governor at the end of 2020 after being nominated by President Trump. Recently, together with Treasury Secretary Scott Besant and former World Bank President David Malpass, he has been mentioned as a candidate for the next Fed chair. Both Vice Chair Bowman and Governor Waller are perceived as supporting Trump’s advocacy for rate cuts.

Former President Trump, on Truth Social, criticized Chair Powell, saying, "I hope Congress handles this stubborn and foolish man properly" and "We will pay for his incompetence for years."

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