The Fed Is Deeply Divided Over When And How Much To Cut Interest Rates

The European Central Bank doesn’t need to continue easing policy as borrowing costs may already be providing stimulus to the economy, according to Governing Council member Robert Holzmann.

“There is no reason at the moment why a further cut should take place — definitely not at the next meeting, and also for the rest of the year,” the Austrian central-bank chief was cited as saying in an interview with Market News. He added that under his assessment, the current level of borrowing costs “puts us at least at neutral, but quite likely in expansionary territory.”

After eight cuts since June 2024, the ECB is widely expected to keep rates on hold when officials meet this month. That’ll be the last meeting for Holzmann, whose term ends in August.

Source: Bloomberg Europe

Key Takeaways:

The Federal Open Market Committee (FOMC) discussed potential monetary policy changes in its June 17–18 meeting, highlighting economic risks and inflation concerns.

Rate adjustments could influence global markets, especially cryptocurrency assets, increasing investor activity.

Market Implications

The FOMC meeting, led by Chair Jerome Powell and other officials, analyzed prevailing economic risks, emphasizing the potential need for a reduction in the target range. Economic uncertainties and inflation pressures were central to discussions, underscoring policy complexity.

Participants considered the possibility of economic activity weakening and assessed inflation pressures as possibly temporary. With current rates held steady since December 2024, the committee remains vigilant amid mixed signals. As Jerome Powell stated, "Most participants assessed that some reduction in the target range for the federal funds rate this year would likely be appropriate, noting that upward pressure on inflation from tariffs may be temporary or modest, that medium- and longer-term inflation expectations had remained well anchored, or that some weakening of economic activity and labor market conditions could occur."

Source: CryptoSlate

The European Central Bank must keep all its options open, given elevated economic uncertainty, and should neither promise nor exclude another cut in interest rates, according to Governing Council member Joachim Nagel.

“It seems fair to say we are in a good position to respond to further developments,” the Bundesbank president said Wednesday in Tuebingen, Germany. “Yet it would be unwise to commit to a certain interest-rate path, to envisage a further step or indeed, to rule it out.”

Nagel, one of the Governing Council’s more hawkish members, said “heightened uncertainty will not quickly disappear.” Therefore, the ECB “would be well advised to act prudently and to make data-dependent decisions on a meeting-by-meeting basis.”

With inflation at the 2% target and the economy so far resilient to headwinds ranging from trade to wars, officials have signaled that the rate-cutting campaign — amounting so far to eight quarter-point reductions in a year — is nearing an end. But at least some are still open to more easing, with markets expecting at least one more move this year.

Several policymakers including France’s Francois Villeroy de Galhau are concerned about a more permanent undershooting of the ECB’s 2% inflation goal — particularly if the euro strengthens further. Vice President Luis de Guindos told Bloomberg TV last week that any appreciation beyond $1.20 would make things “much more complicated.”

The latest ECB projections already anticipate 18 months of consumer-price growth below 2%, before inflation is seen returning to target in 2027. Nagel stressed that it’s base effects that will push consumer-price growth “a bit lower” in 2026.

“Currently, we are at about 2% inflation — and what is even more encouraging: our experts expect inflation to broadly remain at this sweet spot over the medium term,” he said.

Services inflation, which continues to be elevated, “still warrants caution,” Nagel said, though he stressed that a recent retreat is encouraging.

Turning to the ECB’s monetary-policy strategy assessment, Nagel said he “appreciates” the clarification that officials will also react with the same determination when inflation is significantly above 2% and not only when it’s below that level.

While confirming the symmetric 2% inflation goal, the exercise stressed the ECB will use an “appropriately forceful or persistent policy response” to counter large and lasting deviations in either direction — while the 2021 review focused on too-low inflation.

Nagel also repeated calls that “large-scale asset purchases should remain the absolute exception,” also because of its risks for central banks’ balance sheets.

Policymakers kept all instruments — including quantitative easing — as part of the ECB’s toolbox, without saying in which circumstances they should be used. Comments in the review, however, and by some officials suggest QE could be used more sparingly in the future because of knock-on effects including central-bank losses and asset bubbles.

Source: Bloomberg Europe

U.S. President Donald Trump on Wednesday announced a 50% tariff on copper imports, claiming that the measure was aimed at boosting the domestic copper industry.

Trump announced the tariff in a social media post, making good on his threat from earlier in the week. He also criticized his predecessor Joe Biden in the post, claiming that the Biden administration had compromised the U.S. copper industry.

“Copper is the second most used material by the Department of Defense… This 50% TARIFF will reverse the Biden Administration’s thoughtless behavior, and stupidity. America will, once again, build a DOMINANT Copper Industry,” Trump said.

The president had repeatedly threatened to tariff the red metal and boost domestic production. The U.S. domestically produces just over half the refined copper it consumes annually, with the remainder being imported.

Chile, Canada, and Peru are the biggest copper exporters to the U.S., and have all called for the Trump administration to exempt them from the planned tariffs.

China is the world’s largest copper refiner, but is also the largest consumer of the red metal.

Freeport shares rallied, while U.S. copper futures soared to record highs earlier this week after Trump’s tariff threat.

Source: Investing

Source: Bloomberg

Federal Reserve officials diverged at their June meeting about how aggressively they would be willing to cut interest rates, split between concerns over tariff-fueled inflation and signs of labor market weakness and economic strength.

Minutes from the June 17-18 meeting released Wednesday showed that policymakers largely held to a wait-and-see position on future rate moves. The meeting ended with Federal Open Market Committee members voting unanimously to hold the central bank's key borrowing rate in a range between 4.25%-4.5%, where it has been since December 2024.

However, the summary also showed a growing divide over how policy should proceed from here.

"Most participants assessed that some reduction in the target range for the federal funds rate this year would likely be appropriate," the minutes stated, as officials saw tariff-induced inflation pressures as potentially "temporary and modest" while economic growth and hiring could weaken.

How far the cuts could go, though, was a matter of debate.

Opinions ranged from a "couple" officials who said the next cut could come as soon as this month to "some" who thought no cuts this year would be appropriate. Though the minutes do not mention names, Fed governors Michelle Bowman and Christopher Waller have gone on record saying they could see their way to cutting rates as soon as the July 29-30 Fed meeting if inflation stays under control.

At the same time, "several" officials said they thought the current overnight funds rate "may not be far" from a neutral level, meaning only a few cuts may be ahead. Those officials cited inflation still above the 2% goal amid a "resilient" economy.

In Fed parlance, some is more than several.

Officials at the meeting updated their projections for rate cuts, expecting two this year followed by three more over the next couple years.

The release comes with President Donald Trump ramping up pressure on Fed Chair Jerome Powell and his cohorts to cut aggressively. In public statements and on his Truth Social site, Trump has lambasted Powell, going as far to call for his resignation.

Powell has said repeatedly that he won't bow to political pressure when it comes to setting monetary policy. For the most part, he has joined the cautious approach, insisting that with a strong economy and uncertainty over inflation, the Fed is in a good position to stay on hold until it has more information.

The minutes largely reflect that position that policy is currently well-positioned to respond to changes in the data.

"Participants agreed that although uncertainty about inflation and the economic outlook had decreased, it remained appropriate to take a careful approach in adjusting monetary policy," the document stated.

Officials also noted that they "might face difficult tradeoffs if elevated inflation proved to be more persistent while the outlook for employment weakened." In that case, they said they would weigh which side was further from its goal in formulating policy.

Since the meeting, Trump has continued negotiations with key U.S. trading partners, with the tariff ground shifting on a near-daily basis. Trump initially announced tariffs on April 2, and then has altered deadlines for agreements, most recently ticking off a series of letters to foreign leaders notifying them of looming levies should they not act.

Recent data indicate that Trump's tariffs have not Fed into prices, at least on a large scale.

The consumer price index showed an increase of just 0.1% in May. While inflation gauges are still mostly above the Fed's 2% target, recent sentiment surveys show the public is growing less fearful of inflation further down the road.

"Many participants noted that the eventual effect of tariffs on inflation could be more limited if trade deals are reached soon, if firms are able to quickly adjust their supply chains, or if firms can use other margins of adjustment to reduce their exposure to the effects of tariffs," the minutes stated.

At the same time, job gains have slowed considerably, though the rate of nonfarm payrolls growth has consistent surprised economists. June showed an increase of 147,000, against the consensus forecast for 110,000, while the unemployment rate unexpectedly fell to 4.1%.

Consumer spending has slowed considerably. Personal expenditures declined 0.1% in May, while retail sales tumbled 0.9%.

Source: CNBC