Fed divided over whether to slash interest rates in July

Federal Reserve officials are signaling a widening divide over when to begin cutting interest rates, with Governor Christopher Waller pushing for a reduction as soon as next month — while Richmond Fed President Thomas Barkin is warning that tariff-driven inflation risks still loom large.

“I think we’re in the position that we could do this as early as July,” Waller told CNBC’s “Squawk Box” on Friday. “That would be my view, whether the committee would go along with it or not.”

Waller argued that inflation has cooled enough to justify easing monetary policy and downplayed concerns over Trump-era tariffs. “It should be a one-off level effect and not cause persistent inflation,” he said.

Barkin took a more cautious tone, telling Reuters: “I don’t think the data gives us any rush to cut…I am very conscious that we’ve not been at our inflation target for four years.”

He pointed to ongoing uncertainty over trade policy, telling Reuters: “There will be some inflationary impact. It’s hard to know how much.”

A Federal Reserve governor is a nationally appointed official who always votes on monetary policy. The president of a regional Fed bank, such as Richmond, votes on a rotating basis and focuses on regional conditions.

Barkin noted the labor market remains solid and consumer spending is steady.

“Nothing is burning on either side such that it suggests there’s a rush to act,” he said.

His comments came just after the Fed released its latest Monetary Policy Report to Congress, which acknowledged that inflation is “somewhat elevated” and trade policy impacts are “highly uncertain.”

Consumer spending, Barkin said, is “holding up fine. It’s not frothy. It’s not weak.” Employers, he added, are still in a “low-hiring-low-firing” posture.

The central bank held its key rate steady this week. Projections showed a near-even split: 10 officials see two or three cuts in 2025; nine see one or none.

“There are two perfectly reasonable views that are articulated there,” according to the Richmond fed boss.

Waller urged a cautious start. “You’d want to start slow and bring them down, just to make sure that there’s no big surprises. But start the process. That’s the key thing,” he told CNBC.

Markets showed mixed signals Friday. As of 1:01 PM EDT, the Dow Jones rose 118.13 points (0.28%) to 42,289.79. The S&P 500 edged down 0.67 points to 5,980.20, and the Nasdaq slipped 54.82 points (0.28%) to 19,491.45.

Trump has called for steep rate cuts to ease pressure on the $36 trillion national debt, recently labeling Fed Chair Jerome Powell “stupid” and a “numbskull.”

Still, Powell and others have maintained a cautious stance, emphasizing a wait-and-see approach.

“We’ve been on pause for six months, thinking that there was going to be a big tariff shock to inflation. We haven’t seen it,” Waller said.

The next Fed meeting comes just ahead of a July 9 trade deadline that could bring another round of tariffs.

“I’d say the overwhelming reaction we’re still getting is wait and see,” Barkin said. “Wait and see is not put your foot on the brakes. It’s just not put your foot on the gas.”