Tariff Uncertainty Impacts Inflation and Interest Rates Expectations
Concerns over tariff-induced inflation are complicating predictions for future interest rate cuts. While some market experts anticipate a possible 0.25% rate reduction at the upcoming Federal Open Market Committee meeting in September, there is disagreement among Federal Reserve officials.
Fed Governors Michelle Bowman and Christopher Waller, appointed by President Trump, have suggested the potential for a rate cut as early as this month. However, the Federal Open Market Committee opted to maintain the Federal Funds Rate at 4.25% – 4.50% last month, citing a ‘stable’ U.S. economy. This cautious approach aligns with the Fed’s dual mandate of managing inflation and unemployment.
The Federal Reserve Bank of New York’s June 2025 Survey of Consumer Expectations indicates a slight decrease in short-term inflation expectations among U.S. households, with medium and long-term expectations remaining steady. Federal Reserve Chairman Jerome Powell has defended the Fed’s decision to keep interest rates unchanged, emphasizing its prudence in fulfilling the central bank’s mandate.
Citi Research’s Head of Strategy, Rob Row, forecasted three Federal Funds Rate cuts this year and two next year, citing the impact of a tightening labor market on GDP growth.
