This week, several influential Federal Reserve officials spoke out, revealing an increasingly widening divide on whether interest rates should be cut and when, bringing new uncertainty to investors hoping for further easing of policies this year.
On July 17, Federal Reserve Governor Christopher Waller bluntly stated during a speech in New York that the July interest rate decision should involve a rate cut, rather than waiting for the labor market to deteriorate before lowering rates. San Francisco Fed President Mary Daly reiterated in an interview that two rate cuts this year are reasonable and warned that if action is delayed until inflation fully reaches the 2% target, “it is likely that we will have caused completely unnecessary harm to the economy.”
However, earlier that day, Atlanta Fed President Raphael Bostic and Federal Reserve Governor Michelle Bowman both publicly stated that the transmission effect of tariffs on prices is becoming evident, and it is too early to loosen policies now. Bostic remarked that the latest CPI data “conveys a different message,” suggesting that inflation may be at a “turning point.”
These new comments indicate that Trump's tariffs and fiscal policies are causing a growing divide among Federal Reserve policymakers on the issue of rate cuts: for some hawkish individuals, the appropriateness of lowering rates now is in question; moderates advocate for a wait-and-see approach amid uncertainty.
<h2>Doves Worry About Economic Damage and Are Open to Rate Cuts</h2>
Some decision-makers believe that signs of weakness in the labor market may lead to missing the best opportunity to support the economy by overly focusing on current inflation fluctuations, thus bringing unnecessary risks.
According to Wall Street Journal, Federal Reserve Governor Christopher Waller is a representative of this viewpoint. During an event in New York, Waller directly stated that the Federal Reserve should cut rates by 25 basis points in July. Waller's core argument is that the U.S. labor market is showing undeniable signs of weakness. He stated:
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Based on various soft and hard data, what I see is a labor market on the brink of danger.
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He believes that the risk of a weakening labor market is already “significant and sufficient” to justify a rate cut. Based on his cautious assessment of the overall economic outlook, Waller added:
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The economy is still growing, but its momentum has significantly slowed, and the risks facing the FOMC's employment mandate have increased.
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On the same day, San Francisco Fed President Mary Daly also stated in an interview that she still believes the Federal Reserve's plan to cut rates twice this year is “a reasonable outlook.” Daly warned:
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Policymakers cannot wait indefinitely, because if we wait until inflation clearly reaches the 2% target, we are likely to have harmed the economy in a completely unnecessary way.
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However, Daly acknowledged that there are signs that tariffs are pushing up commodity prices, but she is also encouraged by the ongoing deflationary trend in service costs.
She believes that businesses are still bearing the costs brought by tariffs, and consumer spending remains stable, which gives the Federal Reserve room to maintain rates as inflation moves toward the target, but this does not mean that rate cuts should be indefinitely postponed
<h2>Hawkish Voices Strengthen, Warning of Inflation Turning Point</h2>
However, not all officials hold a dovish stance.
On Thursday, Atlanta Federal Reserve President Raphael Bostic pointed out in a media interview that potential signs in the economy indicate that inflation pressures are rising, which is a &#34;worrisome root.&#34;
He emphasized that while inflation data has performed well in recent months, the latest CPI report may signal the arrival of a &#34;turning point.&#34; Therefore, he clearly stated:
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I would choose to wait now.
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On the same day, Federal Reserve Governor Michelle Bowman also expressed a similar view, believing that the central bank should maintain stable interest rates for &#34;some time.&#34; She stated at an event:
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Considering that the labor market remains solid, and short-term inflation expectations and commodity inflation are rising due to tariffs, maintaining the current restrictive policy stance is crucial for anchoring long-term inflation expectations.
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Bowman also cited the latest data predicting that PCE data may see a year-on-year increase from 2.3% in May to 2.5% in June. According to her analysis, the greater impact of tariffs on prices may not yet be fully reflected due to corporate inventory backlogs and frequent changes in trade policy.
Previously mentioned by Wall Street Watch, New York Federal Reserve President John Williams expressed a similar view at an event on Wednesday, believing that although the current comprehensive data shows only limited effects from tariffs, they are expected to add about one percentage point to inflation from the second half of this year to 2026. He emphasized:
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I expect these effects to intensify in the coming months. Maintaining this moderately restrictive monetary policy stance is entirely appropriate.
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<h2>Diverging Policy Outlooks, Market Cautiously Bets on Rate Cut in September</h2>
The divergence in officials' views has already been reflected in the latest economic forecasts released by the Federal Reserve in June.
At that time, the forecast showed that among the 19 participating officials, 10 expected at least two rate cuts by the end of this year, while 7 believed there would be no rate cuts until 2025, reflecting differing judgments on the inflation outlook.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/87bfa17d-fbea-415c-995c-902cb4cdee8b.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/87bfa17d-fbea-415c-995c-902cb4cdee8b.png"/> (Federal Reserve June SEP Dot Plot)
This divergence directly affects market policy expectations. Despite several officials recently making hawkish statements, investors have not completely abandoned hopes for a rate cut. The market believes that the likelihood of the Federal Reserve deciding to cut rates at the September policy meeting is slightly above 50%.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/a4b1e313-ecf3-4d84-ab1c-74aff8d9826e.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/a4b1e313-ecf3-4d84-ab1c-74aff8d9826e.png"/> (September rate cut expectations slightly above 50%)
The bets of investors stand in stark contrast to the cautious attitudes of some officials, highlighting the critical impact of economic data, especially inflation and employment data, on the Federal Reserve's final decision in the coming months

Waller believes that interest rates should be lowered in the July rate decision, rather than waiting for a deterioration in the labor market before adjusting rates. San Francisco Fed President Daly reiterated that two rate cuts within the year are reasonable, and if action is delayed until inflation fully reaches the 2% target, it could likely cause completely unnecessary harm to the economy; however, Fed officials Bostic and Kugler hold the opposite view, believing that the inflection point for inflation is imminent and that the central bank should maintain stable rates for a period of time

- Recent speeches by influential Federal Reserve officials reveal growing divisions on interest rate cuts, creating uncertainty for investors hoping for policy easing this year.  
- While some officials advocate for immediate rate cuts due to signs of labor market weakness, others caution against premature easing, citing potential inflationary pressures from tariffs.  
- This divergence in views reflects broader concerns about the economic outlook, with market expectations for a rate cut in September remaining slightly above 50%.

The strongest call for "July rate cuts" to date, Waller speaks out, and divisions within the Federal Reserve intensify