Multiple officials have clearly stated that more observation is needed for a few months to confirm that the price increases caused by tariffs will not raise inflation in a sustained manner.

Written by: He Hao

Source: Wall Street Journal

On Thursday, several Federal Reserve officials spoke, and they clearly stated that more observation is needed for a few months to confirm that the price increases caused by tariffs will not raise inflation in a sustained manner, and they are not yet prepared to support a rate cut at the next meeting.

Recently, the remarks of two Federal Reserve governors appointed by Trump during his first term, Waller and Bowman, have attracted attention. Both indicated that if inflation remains controlled, they would be willing to start cutting rates at the Federal Reserve's meeting on July 29-30.

However, since then, about ten Federal Reserve policymakers, including Fed Chair Powell, New York Fed President Williams, and San Francisco Fed President Daly, have poured cold water on this view.

Multiple officials say they can wait

Daly acknowledged in a media interview on Thursday that there is increasing evidence suggesting that tariffs may not lead to a large-scale or sustained rise in inflation. However, this only makes her open to the idea of a rate cut in the fall. Daly stated, "My main expectation has always been that we will start adjusting interest rates in the fall, and that view has not changed."

So far this year, the pace of price growth has been below expectations, with the Fed's preferred inflation measure rising 2.1% year-on-year in April, slightly above the 2% target.

Data released earlier on Thursday also showed that the number of people continuously applying for unemployment benefits rose to the highest level since November 2021, having increased significantly over the past six weeks, indicating that more people have been unable to re-employ for a long time. Meanwhile, the number of initial unemployment claims for the week ending June 21 showed a decline.

Daly stated that although the labor market has slowed, she has not seen any clear warning signs of significant weakness. She reiterated that the current monetary policy "is in a good position."

On Thursday, Boston Fed President Susan Collins said in a media interview, "Before the July meeting, we will only see one month of data, and I hope to see more information."

Collins indicated that her baseline expectation is to start cutting rates later this year. "This could mean one rate cut, or it could mean more than one, but I think we need to judge based on the data. I do not see an urgency for a rate cut."

On the same day, Richmond Fed President Barkin pointed out that he expects tariffs to exert upward pressure on prices. Given the significant uncertainty, the Fed should wait for more clear signals before adjusting rates. Barkin said, "In the context of a currently strong economy, we have time to patiently observe and wait for a clearer outlook."

Also on Thursday, dovish Chicago Fed President Goolsbee stated that if inflation clearly falls back toward the 2% target while economic uncertainty decreases, the Fed could resume rate cuts. "I am optimistic about the current data; perhaps the impact of tariffs will be limited to where it should be, but we need to confirm."

Fed Chair Powell previously stated during a congressional hearing on Tuesday that if it were not for the future price uncertainty brought about by tariffs, the Fed would have already begun cutting rates based on the decline in inflation. Before that, there was no need to rush to change the interest rate policy:

The impact of tariffs will depend on various factors, including their final levels. Currently, we have enough space to observe the economic direction before considering whether to adjust the policy stance.

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