The minutes from the Federal Reserve’s June monetary policy meeting are out, and they reveal a Fed divided on the timing of potential interest rate cuts, with differing opinions on the magnitude and duration of tariff-related inflation.
While some committee members said they may vote for a rate cut as early as July, others said it’s possible there may be no rate reduction at all in 2025. Overall, the minutes show that the median response among Fed policymakers implies two 25-basis-point cuts to the benchmark federal funds rate in both 2025 and 2026.
The 12-member Federal Open Market Committee (FOMC) unanimously voted to hold the fed funds rate steady at 4.25% to 4.5% following its June 17-18 meeting. While the move was widely expected, it stoked the ire of Trump administration officials.
President Donald Trump was particularly irked and blasted the decision on social media. He later handwrote a note to Fed Chairman Jerome Powell claiming the Fed’s cautious approach in setting the overnight bank lending rate was costing the federal government hundreds of billions of dollars in interest.
The Fed typically cuts the federal funds rate during periods of cool inflation and raises it when inflation heats up. It also looks closely at the labor market, preferring to cut rates during stretches of heightened unemployment.
Inflation persistence
Powell, in his press conference following the FOMC meeting, cited the uncertainty surrounding Trump’s global tariff policies as a primary driver of the Fed’s circumspect approach to rate cuts.
“The effects on inflation could be short-lived, reflecting a one-time shift in the price level,” Powell said on June 18. “It’s also possible that the inflationary effects could instead be more persistent.”
The FOMC meeting minutes reveal a deeper divide on that question of inflation persistence.
“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, and some highlighted the fact that such persistence could also affect inflation expectations,” the minutes state.
Some committee members noted that tariff impacts may be delayed by companies not passing on cost increases until existing inventory has been depleted. Others observed that negotiated trade deals could mute the long-term inflationary effects of tariffs.
The personal consumption expenditures (PCE) price index — the Fed’s preferred measure of inflation — rose 2.3% year over year in May. The Fed’s inflation target is 2% over the long run.
The June minutes note that the Fed’s median PCE inflation projections of 3% in 2025 and 2.4% in 2026 were lower than projections prepared for the previous meeting, and that “progress in returning inflation to target had continued even though that progress had been uneven.”
A split emerges
The minutes also show that two committee members expressed openness to cutting rates as soon as July. While the individuals were not identified, presumably they were Fed governors Christopher Waller and Michelle Bowman, who publicly conveyed those stances in the week following the FOMC meeting.
Still, the minutes state, “some participants saw the most likely appropriate path of monetary policy as involving no reductions in the target range for the federal funds rate this year.” Those committee members cited the fact that recent inflation readings exceeded the central bank’s 2% target and that the labor market remains resilient, with recent jobs reports from the Bureau of Labor Statistics showing strong hiring trends among U.S. employers.
The next FOMC meeting begins July 29, with the rate decision announced the following day.
