The minutes from the Federal Reserve’s June 17-18 policy meeting are expected on Wednesday to show a divided central bank wrestling with the expected economic impact of rising U.S. import taxes and reluctant to commit to interest rate cuts until it is clearer how much the Trump administration’s tariff increases will add to inflation.
Fed Governor Christopher Waller and Fed Vice Chair for Supervision Michelle Bowman, both appointed by President Donald Trump during his first term in the White House, have said they’d consider cutting the benchmark policy rate as soon as the central bank’s July 29-30 meeting.
The minutes of the June session, due to be released at 2 p.m. EDT (1800 GMT), should indicate whether other policymakers shared their view that the price impacts of tariffs will likely be short-lived, what underpinned the outlook of the seven Fed officials who don’t see lower rates at all in 2025, and whether there were serious concerns about the strength of the job market. The Fed last month held its policy rate steady at the 4.25%-4.50% range that it has maintained since December. Issued three weeks after each meeting, the minutes are always backward-looking – and in this case cover a debate that was held before the release last week of the unexpectedly strong U.S. employment report for June, and also before Trump’s latest threat to impose levies as of August 1 on many countries, including 25% on imports from major trading partners like Japan and South Korea.
But the minutes will add details about the discussion at a key moment, when Trump was publicly calling on the central bank for deep interest rate cuts, even though incoming data and survey results were laced with evidence of both higher prices and slower job growth ahead, a potential policy dilemma for Fed policymakers tasked with maintaining 2% inflation and low unemployment.
While Fed officials after the June meeting said they felt the extreme levels of uncertainty and concern about trade policy had eased since the spring, when Trump’s tariff threats raised the prospect of a deep drop in global trade flows and a potential U.S. recession, much about the trade debate was unsettled at that time and remains so today. Citi analysts said they expect the minutes will suggest “that the trajectory of interest rates will depend on data released in June, July, and August,” consistent with what Fed Chair Jerome Powell later said in a hearing in Congress. Powell’s comments set the stage for a potential rate cut at the Sept. 16-17 meeting if rising prices from tariffs do not show signs of causing persistent inflation and the economy continues to generate enough jobs to keep the unemployment rate from rising too quickly.
“The period of ‘wait-and-see’ may be concluded by the end of the summer,” the Citi analysts said.
‘NOT GOING TO KNOW’
The release of key U.S. inflation data next week will add to a run of summertime statistics that could mark the transition from the low-tariff world Trump inherited, when the average tax on imports was estimated at around 2.5%, to 16% or more depending on where final tariff levels end up, economists estimate. Trump has with frequently insulting language and calls for Powell’s resignation urged the Fed to slash borrowing costs, but the bulk of the central bank’s 19 policymakers are only tentatively moving in that direction. Nine officials see no rate cuts or only one quarter-percentage-point move this year, eight see two quarter-percentage-point cuts, and just two anticipate three quarter-percentage-point reductions. Investors expect the Fed to resume its rate cuts in September, but much will depend on how inflation behaves in coming months as businesses determine how to distribute higher costs for imported products and supplies – and whether that seems to develop as a one-time price adjustment or opens the door to more ongoing rounds of increases.
The Fed’s most recent economic projections show policymakers seeming to “look through” coming higher inflation, with the pace of price increases rising over the rest of this year but falling again in 2026 even with expected lower interest rates. But it could still be a hard call for policymakers on when and how deeply to cut rates. With higher tariffs on the table as of August 1 and other announcements expected, Jonathan Pingle, chief U.S. economist at UBS, estimated inflation measured by the Fed’s preferred Personal Consumption Expenditures Price Index will hit 3.4% by the end of year, far above the central bank’s 2% target and higher than what most Fed officials anticipate, while economic growth slows to perhaps a 1% annual rate.
In theory the price shock should mark just a one-time shift in costs that lowers the purchasing power of wages and slows growth and potentially employment, particularly with monetary policy at a level considered to further restrict activity.
Tight monetary policy won’t help restrain those sorts of price increases, Pingle said, but it is still “going to make it tricky” for the Fed to declare that the rise in inflation will be temporary and then cut rates – an assessment it made wrongly in 2021 when policymakers held off on rate increases only to see inflation accelerate.
Even heading into the fall, “you’re not going to know at that point whether or not this is just a temporary lift … or is it more persistent? They are not going to know that in real time,” Pingle said. “What they will know,” he said, is that a high Fed policy rate is “not really well-suited for addressing this type of inflation problem, but risks making a weak labor market even weaker.”
(Reporting by Howard Scheider; Editing by Paul Simao)
