Federal Reserve Messenger: No longer united within the Fed, era of divergence may emerge

律动BlockBeats
律动BlockBeats|Jul 10, 2025 01:55
BlockBeats News: On July 10th, Nick Timiraos, a Wall Street Journal reporter known as the "voice tube" of the Federal Reserve, published an article stating that a debate within the Fed on how to respond to the risks posed by Trump's tariffs may end a period of relative unity, and officials may have disagreements on whether new cost increases are a reason to keep interest rates high. In recent weeks, Federal Reserve Chairman Powell has hinted that the threshold for interest rate cuts may be lower than it seemed this spring, but it is expected that there will be no rate cuts this month. On the contrary, Powell depicted a 'middle path': if inflation data is lower than expected or the job market is slightly weak, this may be enough for the Federal Reserve to initiate interest rate cuts before the end of summer. This standard is lower than the previously stricter threshold - at that time, in the context of larger scale tariff increases triggering severe inflation expectations, the Federal Reserve may require more obvious signs of economic deterioration before considering interest rate cuts. The tariff hike announced by Trump in April exceeded expectations, raising concerns about the stagflation situation of weakened economic growth and rising prices, and disrupting the Federal Reserve's plan to resume interest rate cuts this year. But since then, two developments have driven a possible transformation. Firstly, Trump has reduced some of the most extreme tariff hikes; Secondly, the increase in consumer prices related to tariffs has not yet become a reality. This provides a crucial test for the competing theories about whether tariffs will lead to inflation and has sparked internal disagreements on how to manage forecast errors. (Golden Ten)
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