Fed likely to stay cautious on rate cuts despite cooler inflation reading

Other Fed officials this week have emphasized a patient approach. Richmond Fed president Tom Barkin told reporters Wednesday that he sees a scenario where rates could remain on hold for the rest of the year.

He noted that it’s hard to get maximum employment unless you have price stability and that one of the lessons from the inflation battles of the 1970s is not to ignore prices.

Minneapolis Federal Reserve president Neel Kashkari said Wednesday that the bar for cutting interest rates is “higher” right now to keep inflation expectations anchored in the face of tariffs — even if the economy weakens and job losses mount.

Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments

“In my view, the hurdle to change the federal funds rate one way or the other has increased due to the tariffs,” Kashkari wrote in an essay.

Another voice of caution this week came from Federal Reserve Bank of San Francisco president Mary Daly, who on Tuesday said the central bank could take its time before making any adjustments to rates as it waits to see how trade policy changes play out.

“We cut the interest rate by 100 basis points last year,” she said. “That puts policy in a good place to stay modestly restrictive — keep inflation coming down — but not so restrictive that the economy is vulnerable,” Daly said Tuesday during a discussion at Brigham Young University.

And even Fed Chair Jerome Powell made it clear last Friday that the Fed isn’t in a hurry to take any action on rates due to many uncertainties, saying, “It is too soon to say what will be the appropriate path for monetary policy.”

The same uncertainties dominated the discussion at the Fed’s last meeting in March. Minutes from that meeting released Wednesday showed policymakers favored a “cautious” approach as they worried about both higher inflation and slower growth while knowing they “may face difficult trade-offs” ahead.

Schmid, the Kansas City Fed boss, said, “It appears as though we have seen a marked increase in the upside risks around inflation along with elevated downside risks to the outlook for employment and growth.”

He underscored there is a growing possibility that in setting policy, the Fed will have to balance inflation risks against growth and employment concerns.

Schmid stressed that while, in theory, tariffs may have only temporary effects on inflation, he would be “hesitant to take too much solace from theory in this environment.”

Boston Fed president Susan Collins said Thursday she believes broad-based new tariffs will push up inflation while slowing growth.

She believes that “maintaining the current monetary policy stance seems appropriate for the time being,” but also said “it might still be appropriate to lower the federal funds rate later this year.”

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