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The majority of US Federal Reserve officials warned at its June meeting that President Donald Trump’s tariffs would have “persistent effects” on inflation amid a growing schism over when to cut interest rates.
Minutes from the Federal Open Market Committee’s meeting on June 17-18 showed that while some rate setters believed the levies would trigger a one-off price increase, most were concerned the inflationary impacts could be more sustained.
“While a few participants noted that tariffs would lead to a one-time increase in prices and would not affect longer-term inflation expectations, most participants noted the risk that tariffs could have more persistent effects on inflation,” according to minutes released on Wednesday.
Officials noted tariffs were likely to push up prices to some extent, but “there was considerable uncertainty . . . about the timing, size, and duration of these effects”.
The meeting came amid a growing schism at the central bank over when to lower borrowing costs, with officials divided over how many cuts to make for the rest of the year.
Ten members expected two or more quarter-point cuts by the end of the year, while seven forecast no cuts and two anticipated just one.
The Fed cut rates by 1 percentage point last year but has been on pause since December, with the committee’s “hawks” preferring to wait to see how Trump’s tariffs affected inflation before taking action. Its “doves” are keen to lower borrowing costs to offset any softening in economic growth.
Following the meeting, two FOMC members said cuts should be made as soon as this month. Michelle Bowman, vice-chair for financial supervision, and governor Christopher Waller argued fears over the inflationary impact of the trade war were overblown.
The minutes noted “most participants assessed that some reduction in the target range for the federal funds rate this year would likely be appropriate”.
But in a likely reference to Bowman and Waller, they added that “a couple of participants” had indicated that if the data falls as they expect it to they would be “open to considering a reduction . . . as soon as at the next meeting”.
Paul Ashworth at Capital Economics said the minutes made clear that most Fed officials were “content to wait and see” before committing either to holding or cutting rates this year.
Fed chair Jay Powell has faced relentless pressure from the president to slash borrowing costs. Earlier on Wednesday, Trump wrote on his Truth Social platform that the rate was “AT LEAST 3 Points too high”.
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“‘Too Late’ is costing the U.S. 360 Billion Dollars a Point, PER YEAR, in refinancing costs,” he added, using a nickname he has given to Powell. The Fed chair has insisted any decision to cut will be guided by economic data.
After the meeting Powell told a congressional hearing he would not support a reduction before the autumn. He later appeared to walk back those comments, saying last week that a July cut was not “off the table”.
Stronger than expected June employment data released in the wake of the meeting has prompted traders to dial back bets on a near-term rate cut. But some analysts warned the headline figure masked weak private sector hiring. Inflation data is due out next week.
