Federal Reserve Considers Cutting Interest Rates
The US central bank, Federal Reserve, is considering cutting interest rates as early as next month. This suggestion was made by Fed Governor Christopher Waller, who holds a permanent vote on the central bank’s rate-setting Federal Open Market Committee. In a recent interview on CNBC, Waller stated, "We could do this as early as July… That would be my view, whether the committee would go along with it or not."
Current Interest Rates
The Federal Reserve has held interest rates steady between 4.25 and 4.50 percent. This decision was unanimous among Fed officials, including Waller. The Central Bank of the UAE also followed suit, holding rates steady due to the dollar peg.
Forecast and Future Policy
Fed officials have maintained their forecast for two quarter-point cuts this year, with a slower pace of! cuts in 2026. However, some officials have projected zero rate cuts, citing uncertainty about the future policy path. The central bank has not adjusted interest rates in its last four meetings, primarily due to the uncertainty surrounding tariffs.
Impact of Tariffs on Inflation
Waller believes that the Fed can "look through" the inflation impact of tariffs, arguing that they would create a one-time inflation bump rather than persistent high prices. Fed Chair Jerome Powell also stated that tariffs could have either a one-off or persistent effect on inflation.
Inflation Trends
The Fed’s preferred inflation metric, the Personal Consumption Expenditures (PCE) Price Index, has decelerated for three consecutive months. The index rose 2.1 percent annually last month, just above the Fed’s long-term target. Waller noted that the data from the last few months shows that trend inflation is "looking pretty good."
Jobs Market Concerns
Waller also expressed concerns about the jobs market, citing fewer jobs being created. The four-week average of jobless claims is at its highest level since August 2023, according to data from the Labour Department. Waller questioned why the Fed should wait until the job market "crashes" before cutting interest rates.
Next Steps
The Fed’s next meeting is scheduled for July 29-30. Waller suggested that if the Fed were to begin cutting rates in July, it should start slowly. He emphasized the importance of beginning the process, allowing for flexibility to pause if needed, such as in response to a major shock like the Middle East conflict.
Conclusion
The Federal Reserve is considering cutting interest rates as early as next month, citing concerns about the jobs market and the need to "look through" the inflation impact of tariffs. With the next meeting scheduled for July 29-30, Waller’s suggestion to start the process slowly may be taken into account. As the central bank navigates uncertain economic conditions, its decision on interest rates will be closely watched by markets and investors.
