Powell warns a “long road” before the Fed cuts interest rates

The Fed left the major short-term interest rates at around 4.3% for the fifth time this year, as expected. However, Powell also indicated that it could take months to determine if the Fed is Trump or not. Sweeping Tax It temporarily boosts inflation and leads to more sustained matches at higher prices. His comments suggest that the September interest rate cuts, which were expected by some economists and investors, are unlikely to be large now.

“I learned that this process will probably be slower than I expected,” Powell said. “We think there is a long way to go to understand exactly how tariffs affect inflation and the economy.

There were several signs of division in the federal ranks. Governor Christopher Waller and Michelle Bowman voted to reduce borrowing costs, but nine officials, including Powell, supported the standing putt. This is the first time in more than 30 years that two of the seven Washington-based governors have objected. One staff member, Gov. Adriana Coogler, was absent and did not vote.

Choices that reduce rate reductions are almost certainly more Conflict between the Fed and the White HouseTrump has repeatedly called for the central bank to cut its borrowing costs as part of his efforts to control one of the few remaining independent federal agencies.

Powell signaled at press conferences in the past that fee movements may be on the table for future meetings, but this time he did not give such a hint. According to futures prices, the probability of interest rate reductions in September fell from nearly 60% before the meeting to just 45% after the press conference. This is equivalent to a coin flip. CME FedWatch.

“We didn’t make any decisions about September,” Powell said. The chairman acknowledged that if the Fed cuts that rate early, inflation could be high, and if it’s too late, the job market could suffer.

The US major stock index, which traded slightly higher on Wednesday, went negative after Powell’s comments.

“The market appears to think Powell has pushed back interest rate cuts in September,” said Lauren Goodwin, chief market strategist at New York Life Investments.

Powell also emphasized that the majority of the committee agreed to a basic framework. Although inflation is still 2% above the federal target, the Fed will need to raise interest rates as the job market is still mostly healthy. On Thursday, the government released the latest reading of the Fed’s preferred inflation gauge, showing that core prices excluding energy and food rose 2.7% year-on-year.

Gus Faucher, chief economist at PNC Financial, predicts that tariffs will only temporarily raise inflation, but says that much of the rest of the year will be needed before that becomes clear. He doesn’t expect the Fed to cut through until December.

Trump has argued that prices should be lowered as the US economy is on track. But unlike blue-chip companies, which usually pay lower fees than problematic startups, it differs across the economy. The Fed is likely to keep them high if growth rates are adjusted to either slow or speed, and if the economy is strong to prevent inflation from occurring.

The government said early on Wednesday. The economy has expanded At the healthy 3% annual rate for the second quarter, that figure followed a negative reading that the economy had contracted by 0.5% annually for the first three months of the year. Most economists averaged two numbers to get a growth rate of around 1.2% in the first half of this year.

The opponents of Waller and Bowman may reflect jockeys to replace Powell, which will end in May 2026.

Michael Ferroli, Economist jpmorgan chainIf the pair objected this week, they said this week in a note to clients.

Meanwhile, Bowman last opposed it in September 2024. She said she preferred a quarter point cut instead, citing the fact that inflation still exceeds 2.5% as a reason for caution.

Waller said Early this month He supported the cut rate, but for very different reasons than Trump cited, Waller believes growth and employment are slowing, and the Fed should cut borrowing costs to prevent an increase in unemployment.

The Fed’s 19-person pricing committee has other camps. In fact, only 12 out of 19 people vote for the fee decision. In June, seven members signaled that they would support a rate that would not change until the end of the year, but the two suggested that they would prefer a single rate cut. The other half supported more cuts, eight staff supported two cuts, and two (widely considered Waller and Bowman) supported three cuts.

Opponents could be a preview of what could happen after Powell resigns if they appoint an alternative that drives the much lower interest rates the White House wants. If other chairs try to cut fees more than the economic situation supports, other Fed officials can push back.

Overall, the committee’s quarterly forecast for June suggested the Fed would cut twice this year. There will only be three more Fed policy meetings in September, October and December.

When the Fed cuts that rate, it often – but Not always – Lower mortgage, car loans and credit card borrowing costs.

Some economists agree with Waller’s concerns about the job market. Excluding government employment, the economy added just 74,000 jobs in June, with most of them occurring in healthcare.

“We work much slower than most people appreciate,” said Tom Polcelli, chief economist at PGIM bonds.