Fed’s Signals Possible July Rate Cut as Inflation Cools
Fed’s Bowman Signals Support for July Rate Cut Amid Easing Inflation and Labor Market Concerns
Federal Reserve Governor Michelle Bowman has indicated she would support an interest rate cut as early as the Fed’s next meeting in late July. Her remarks reflect growing signs that the central bank may shift toward a more accommodative policy stance due to cooling inflation and early signs of labor market weakness.
Speaking at a conference in Prague on Monday, Bowman said recent inflation data has either declined or come in below expectations, suggesting the Fed may no longer need to keep rates at restrictive levels.“Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting,” she said, adding that this would help move rates closer to neutral and support the labor market.
Her comments follow similar remarks from Fed Governor Christopher Waller, who also said a rate cut could come as soon as July.
Tariffs and Inflation: Limited Impact for Now Bowman also said that the inflation impact from recent tariffs appears to be limited for now. She noted that many companies have already built up inventories in anticipation of trade changes, and the overall effect on inflation could be minimal in the short term. She added that ongoing trade negotiations may reduce tariffs in the future, which could ease inflation pressures further.Mixed Views Inside the Fed Despite Bowman’s and Waller’s dovish signals, not all Fed officials agree on a rate cut. Fed Chair Jerome Powell and others have urged caution, especially with the risk of inflation returning due to new tariffs and global tensions.
Powell said that while inflation is easing, goods prices might rise this summer, and it’s too soon to lower rates.San Francisco Fed President Mary Daly said she prefers to wait until the fall for more data, while Richmond Fed President Tom Barkin emphasized the strength of the labor market and the risk of acting too soon.
Fed’s “Dot Plot” Shows Division
The Fed’s latest “dot plot,” which shows individual policymakers’ rate forecasts, highlights this divide. Eight members expect two rate cuts in 2025, but seven expect no cuts at all — up from four previously.
Geopolitical Risks Complicate Outlook Tensions in the Middle East are adding to uncertainty. U.S. strikes on Iranian nuclear sites have raised fears of rising oil prices. Analysts warn that if oil supply routes are disrupted, prices could spike to $120 per barrel, potentially pushing inflation up again.
This would support the case of Fed officials who want to keep rates higher for longer to prevent another inflation surge.
Oil Prices and Growth Risks However, some economists argue that higher oil prices could hurt growth more than they raise inflation. Ryan Sweet of Oxford Economics said a long-lasting oil shock could reduce consumer spending and threaten the labor market — possibly giving the Fed more reason to cut rates.
“An extended oil shock could dent demand and potentially spill over into an otherwise resilient labor market,” Sweet said. Looking Ahead to the July Meeting Attention now turns to the Fed’s July 29–30 meeting, where officials must balance falling inflation, a softening job market, geopolitical risks, and the impact of tariffs. Bowman’s comments show growing support within the Fed for a rate cut. Whether it happens will depend on how economic data evolves and if more policymakers are convinced that it’s time to act.
Published on 26/06/2025
By Michael S.