Tariffs Fuel Inflation Risks: Fed Minutes Could Signal Rate Cut Divides

Fed Minutes Preview: Tariffs Complicate Rate Cut Timing

Federal Reserve minutes from the June 17–18 meeting, releasing Wednesday at 18:00 GMT, will clarify divisions among policymakers over rate cuts as Trump’s fresh tariff threats introduce inflation concerns.

The Fed held rates steady at 4.25%–4.50% last month, but internal disagreements signal potential volatility for bond and equity markets as traders assess policy risk through summer.

Waller, Bowman Push for July Cuts

Governor Christopher Waller and Vice Chair Michelle Bowman have signaled openness to rate cuts as early as the July 29–30 meeting.

The minutes will reveal whether other policymakers share their view that tariff-driven price increases will be temporary, shaping expectations for near-term easing.

Current dot plot data shows nine officials see zero or one cut this year, eight project two cuts, and only two expect three, leaving markets uncertain on the Fed’s path into year-end.

Trump’s 25% Tariffs Raise Policy Dilemmas

Trump’s newly announced 25% tariffs on Japanese and South Korean imports, effective August 1, were not discussed in the June meeting but will weigh on upcoming Fed decisions.

UBS Chief U.S. Economist Jonathan Pingle projects these measures could lift the Fed’s preferred PCE inflation gauge to 3.4% by December, well above the 2% target and Fed officials’ forecasts.

While higher tariffs typically generate one-time price increases rather than persistent inflation, the Fed must judge whether this cycle will follow historical patterns.

Data Dependence for September Cuts

Citi analysts expect the minutes to reinforce a data-dependent stance, with June, July, and August data driving the rate decision calendar. Chair Jerome Powell’s recent testimony suggested potential cuts in September if inflation pressures from tariffs do not persist.

Next week’s inflation report will be critical, with traders watching closely to determine whether businesses treat higher import costs as one-time adjustments or pass them through persistently.

Market Forecast: Hawkish Hold Likely

The Fed risks a 2021-style policy error if it cuts rates prematurely while inflation remains elevated.

With monetary policy poorly suited to counter tariff-driven price spikes, policymakers are likely to maintain restrictive rates through summer, even if labor market conditions soften.

September remains the earliest realistic window for rate cuts, contingent on evidence that tariff impacts on inflation are temporary.

Bond markets should prepare for an extended higher-for-longer environment, while equity sectors sensitive to import costs will face continued pressure into Q3.

More Information in our Economic Calendar.