Federal Reserve's July Meeting: Rates Set to Hold Steady

Fed in political crossfire as July meeting nears

The Federal Reserve is bracing for its July policy meeting under intense scrutiny from President Donald Trump, who has accused the central bank of “playing politics” by holding interest rates steady. Trump’s criticism has grown increasingly personal, with renewed calls for Fed Chair Jerome Powell’s removal and attacks on the institution’s $2.5 billion headquarters renovation as evidence of mismanagement.

Despite the rhetoric, Fed officials remain focused on economic data. According to sources familiar with the matter, Powell is expected to sidestep political questions during the post-meeting press conference, reiterating the Fed’s dual mandate and independence.

“You have to try to just ignore it and not talk about it,” said a former Fed official. “We’re thinking about our mandate and trying to get policy right. That’s a hard enough job.”

Inflation spike linked to tariffs complicates policy path

The latest CPI data showed headline inflation rising to 2.7% in June, the sharpest increase since February, largely driven by tariffs. Prices for imported goods such as appliances, furniture, and toys posted their highest annual gains in over two years, contributing nearly 40% to the overall monthly rise.

Atlanta Fed President Raphael Bostic noted that recent price data “is sending a different message” and may mark an inflection point in the inflation narrative. Fed officials are now wary of repeating the mistakes of the pandemic-era response, when inflation was deemed transitory for too long.

Despite persistent consumer strength—restaurant and retail spending exceeded forecasts, and jobless claims have declined for six consecutive weeks—the Fed sees room for caution. “There’s really no rush to ease policy further,” said one economist, citing the need for clearer trade signals and more data.

St. Louis Fed President Alberto Musalem emphasized patience, noting that “it’s going to take time for the tariffs to settle” before their full economic impact can be assessed.

Dissent brews inside the Fed as Waller, Bowman push for cuts

For now, the consensus is to hold rates steady, but internal divisions are emerging. Fed Governor Christopher Waller stated unequivocally that he will vote for a 25 basis point rate cut in July, citing signs of labor market fragility. If he is outvoted, he plans to dissent—an increasingly rare move among Fed governors.

Governor Michelle Bowman is expected to join him, having signaled support for a near-term cut if inflation pressures remain subdued. Both are Trump appointees, and their dissent would mark the first time since 1993 that two Fed governors opposed the chair in the same meeting.

Still, Powell is unlikely to be rattled. He has historically welcomed internal debate, describing it as a safeguard against groupthink. Yet a high-profile split within the Fed could add complexity to forward guidance as the institution navigates a delicate economic landscape.

Market expects September cut if data aligns

The Fed’s dot plot still implies two rate cuts this year, and market pricing has increasingly coalesced around September as the most likely timeframe for the next move. Policymakers have said they need more clarity, particularly from upcoming inflation and employment reports, before taking action.

San Francisco Fed President Mary Daly warned that waiting too long could lead to policy mistakes. “Waiting for inflation to rise or become persistent could leave us behind,” she said.

If the data supports it, the Fed may signal readiness to act in September. “If they don’t move at this meeting, they could hint pretty broadly that, if the data are good, they’ll be cutting at the next meeting,” said one former Fed insider.

What it means for borrowers and the broader economy

For consumers, the timing and reason behind any Fed rate cut matters. If cuts stem from easing inflation and not from economic deterioration, borrowing costs may fall without triggering a broad economic slowdown. But uncertainty—especially surrounding jobs and trade—could mute the stimulus effect of lower rates.

“There’s a window for good-news cuts,” McBride said. “But if we don’t see material and sustainable improvement in inflation by September, and if the labor market softens, that window could close quickly.”

With Trump’s pressure campaign escalating, Powell and his colleagues now face a two-front battle: guiding the U.S. economy through inflation and trade shocks, while defending the Fed’s credibility and independence.