The budding rift among Federal Reserve officials over the trajectory of interest rates hinges on diverging views over the inflationary magic of Donald Trump’s tariffs. According to minutes from the latest Federal Open Market Committee (FOMC) meeting on June 17–18, the once-staid world of monetary policy is now grappling with the economic fallout of political uncertainty.
“While a few participants noted that tariffs would lead to a one-off price increase and would not alter long-term inflation expectations, most expressed concern that tariffs could have more persistent effects,” the minutes recorded, with the diplomatic subtlety of a central bank trying not to offend the elephant in the room.

The Fed’s new interest rate projections revealed a divided house, with ten of the nineteen officials expecting at least two rate cuts by year-end. Meanwhile, seven anticipated no cuts at all through 2025, with two allowing for a single cut, as if to prove that economic clairvoyance is now more art than science.
Policymakers flagged “considerable uncertainty” surrounding the timing, magnitude, and longevity of tariff-induced inflation. With the Trump administration lurching from one policy grenade to another—trade wars, immigration crackdowns, and fiscal profligacy—it’s no wonder the Fed is struggling to decipher the economic smoke signals.

The committee voted unanimously (a rare moment of consensus) to keep rates steady for the fourth straight meeting, a move that earned it another public lashing from President Trump, who continues to demand cheaper money as if the Fed were his personal ATM.
The minutes laid bare just how deeply trade policy has mangled the Fed’s once-reliable economic compass. Tariff escalation has rendered economic forecasting a matter of speculative fiction. “Participants judged that uncertainty about the outlook remained elevated given developments in trade policy, other government policies, and geopolitical risks,” the minutes stated; translation: the White House is rewriting the rules faster than the Fed can react.

While most economists still believe tariffs will push up inflation and suppress growth, the data has yet to show widespread damage. That leaves the central bank suspended in policy limbo: waiting for proof of the train crash before hitting the brakes.
Chair Jerome Powell has said the Fed would likely have cut rates already if not for the inflationary spectre of tariffs. Now, all eyes turn to the next consumer price report, due on July 15, for some clarity in the economic fog.

Since June, Fed governors Christopher Waller and Michelle Bowman have floated the idea of rate cuts as soon as this month, citing easing inflation. The minutes note that a “few” officials were open to that very idea at the July 29–30 meeting. The majority, however, maintain that a “modest reduction” in rates may be warranted before the end of the year, although the prevailing mood remains one of cautious inertia.
Despite Trump’s economic pyrotechnics, Fed officials declared the economy “solid” and unemployment “low”—a masterclass in central bank understatement. “Participants agreed that, although uncertainty regarding inflation and the economic outlook had abated somewhat, it remained appropriate to proceed carefully in adjusting policy,” the minutes said, revealing a level of restraint rarely seen in Washington.

Recent labour data revealed some soft spots, which may temper the hawkish camp and pave the way for rate cuts in July. Futures markets now price in easing in both September and December, assuming, of course, Trump doesn’t wake up one morning and slap a 100% tariff on breakfast cereals.
Meanwhile, the Fed continues its soul-searching on how best to communicate policy without inducing panic or ridicule. The minutes note discussions about revising the quarterly Summary of Economic Projections and expanding the use of alternative scenarios, presumably one in which central banks operate without political sabotage.