Powell warns of ‘long way to go’ before Fed can maybe cut interest rates

Finance·Federal ReservePowell warns of ‘long way to go’ before Fed can maybe cut interest ratesBy Christopher RugaberBy The Associated PressBy Christopher RugaberBy The Associated Press Federal Reserve Chairman Jerome Powell.AP Photo/Julia Demaree Nikhinson, FileFederal Reserve Chair Jerome Powell gave little indication on Wednesday of bowing anytime soon to President Donald Trump’s frequent demands that he cut interest rates, even as signs of dissent emerged on the Fed’s governing board

But Powell also signaled that it could take months for the Fed to determine whether Trump’s sweeping tariffs will push up inflation temporarily or lead to a more persistent bout of higher prices

His s suggest that a rate cut in September, which had been expected by some economists and investors, is now less ly. “We’ve learned that the cess will bably be slower than expected,” Powell said. “We think we have a long way to go to really understand exactly how” the tariffs will affect inflation and the economy

There were some signs of splits in the Fed’s ranks: Governors Christopher Waller and Michelle Bowman voted to reduce borrowing costs, while nine officials, including Powell, favored standing pat

It is the first time in more than three decades that two of the seven Washington-based governors have dissented

One official, Governor Adriana Kugler, was absent and didn’t vote

The choice to hold off on a rate cut will almost certainly result in further conflict between the Fed and White House, as Trump has repeatedly demanded that the central bank reduce borrowing costs as part of his effort to assert control over one of the few remaining independent federal agencies

Powell has in the past signaled during a news conference that a rate move might be on the table for an upcoming meeting, but he gave no such hints this time

The odds of a rate cut in September, according to futures pricing, fell from nearly 60% before the meeting to just 45% after the press conference, the equivalent of a coin flip, according to CME Fedwatch. “We have made no decisions September,” Powell said

The chair acknowledged that if the Fed cut its rate too soon, inflation could move higher, and if it cut too late, then the job market could suffer

Major U.S. stock indexes, which had been trading slightly higher Wednesday, went negative after Powell’s s. “The seem to think that Powell pushed back on a September rate cut,” said Lauren Goodwin, chief market strategist at New York Life Investments

Gus Faucher, chief economist at PNC Financial, says he expects the tariffs will only temporarily raise inflation, but that it will take most of the rest of this year for that to become apparent

He doesn’t expect the Fed to cut until December

Trump argues that because the U.S. economy is doing well, rates should be lowered

But un a blue-chip company that usually pays lower rates than a troubled startup, it’s different for an entire economy

The Fed adjusts rates to either slow or speed growth, and would be more ly to keep them high if the economy is strong to prevent an inflationary outbreak

Earlier Wednesday, the government said the economy expanded at a healthy 3% annual rate in the second quarter, though that figure ed a negative reading for the first three months of the year, when the economy shrank 0.5% at an annual rate

Waller in particular has been mentioned as a potential future Fed chair

Michael Feroli, an economist at JPMorgan Chase, said in a note to clients this week if the pair were to dissent, “it would say more auditioning for the Fed chair appointment than economic conditions.” Bowman, meanwhile, last dissented in September 2024, when the Fed cut its key rate by a half-point

She said she preferred a quarter point cut instead, and cited the fact that inflation was still above 2.5% as a reason for caution

Waller said earlier this month that he favored cutting rates, but for very different reasons than Trump has cited: Waller thinks that growth and hiring are slowing, and that the Fed should reduce borrowing costs to forestall a rise in unemployment

There are other camps on the Fed’s 19-member rate-setting committee — only 12 of the 19 actually vote on rate decisions

In June, seven members signaled that they supported leaving rates unchanged through the end of this year, while two suggested they preferred a single rate cut

The other half supported more reductions, with eight officials backing two cuts, and two — widely thought to be Waller and Bowman — supporting three reductions

The dissents could be a preview of what might happen after Powell steps down, if Trump appoints a replacement who pushes for the much lower interest rates the White House desires

Other Fed officials could push back if a future chair sought to cut rates by more than economic conditions would otherwise support

Overall, the committee’s quarterly forecasts in June suggested the Fed would cut twice this year

There are only three more Fed policy meetings — in September, October, and December

When the Fed cuts its rate, it often — but not always — results in lower borrowing costs for mortgages, auto loans and credit cards

Some economists agree with Waller’s concerns the job market

Excluding government hiring, the economy added just 74,000 jobs in June, with most of those gains occurring in health care. “We are in a much slower job hiring backdrop than most people appreciate,” said Tom Porcelli, chief U.S. economist at PGIM Fixed Income

Explore this year's list.