Federal Reserve officials appear determined to keep interest rates on hold, at least for a bit longer. But don’t mistake this for unity. Behind the scenes, a rather noisy tug-of-war is unfolding, one that may very well pave the way for rate cuts come autumn.
Chair Jerome Powell, increasingly boxed in by Donald Trump’s not-so-subtle campaign of rate-cut intimidation, now faces possible open dissent from Trump-appointed governors, eager to “support” a slowing labour market with cheaper money because nothing says independent central banking like whispered threats from the White House.
Still, expectations are that the Fed will do nothing at its 30 July meeting, hoping for a few more tea leaves to reveal how Trump’s tariff grenades are impacting consumer prices. Most committee members still prefer to twiddle their thumbs while tariffs do their worst, cautiously, of course.
Markets are betting on a rate cut in September. Fed watchers will be parsing every comma for a hint that they’re right.
Two names to watch: Christopher Waller and Michelle Bowman, both Trump appointees, who are convinced that rates are far too high for the feeble job market. Bowman has already floated the idea of cutting this month, citing a labour market “on the edge.” If both dissent, it would be the first time two Fed governors have broken ranks since 1993. Waller, for what it’s worth, is widely seen as a contender for Powell’s job, once Trump removes him with the subtlety of a bulldozer in May.
Powell will likely use the presser to reiterate that the Fed’s “focus remains on price stability”, as if the institution weren’t being shouted at daily by Trump and co. Meanwhile, Fed staff remain perplexed as to why tariffs have not yet sparked more inflation. Maybe businesses hoarded goods. Maybe supply chains are absorbing the shocks. Maybe, just perhaps, the data lags behind the chaos.
According to Fed projections from June, ten officials wanted at least two cuts this year, while seven preferred to remain unchanged. A divided house, indeed.
Inflation has surprised on the low side lately, and tariffed goods, such as toys and appliances, haven’t soared as expected. However, some Fed members, still traumatised by post-COVID price spirals, are waiting for the other shoe to drop.
Incredible as it may seem, the world’s most powerful central bank now operates under siege—its credibility fraying, its leadership cornered, and its decisions increasingly shaped not by data but by electoral mood swings and presidential tantrums. With the Fed caught between inflation phobia and political theatre, monetary policy risks becoming just another tool in Washington’s re-election kit. Welcome to the era of central bank hostage-taking—American style.