Some Federal Reserve policymakers are not budging from their view that rates should remain where they are despite the intensifying pressure from President Trump and his allies to ease monetary policy immediately.
Federal Reserve governor Adriana Kugler and New York Fed president John Williams both made this argument in speeches delivered Thursday morning and Wednesday night, citing the risk of inflation pressure from tariffs.
“With the unemployment rate still at historically low levels, elevated short-run inflation expectations, and goods inflation rising due to the upward pressure from tariffs, I find it appropriate to hold our policy rate at the current level for some time,” Kugler said in her Thursday speech in Washington, D.C.
“I judge that inflation is likely to increase further as tariff effects build up during the rest of the year.”
On Wednesday night, Williams stressed that he thinks that tariffs are already pushing up inflation and that will increase in the coming months. He expects tariffs will push up inflation by a full percentage point in the second half of this year and into the first part of 2026.
“Maintaining this modestly restrictive stance of monetary policy is entirely appropriate to achieve our maximum employment and price stability goals,” Williams said in his speech.
Opposing camps are now forming inside the central bank on the question of Trump’s tariffs and how they should affect what the Fed does on rates.
Two other Fed governors, Christopher Waller and Michelle Bowman, have argued for cuts as early as the next meeting July 29-30, which is not an outcome investors expect.
Waller last week reiterated that any inflation from tariffs will be temporary, justifying a looser monetary policy approach.
“I think we’re just too tight and we could consider cutting the policy rate in July,” said Waller, adding, “It’s not political.”
Waller’s arguments carry increasing weight since he is considered to be among the candidates to replace Jerome Powell as Fed chair next May, when Powell’s term is up.
“We’re not seeing a lot of tariff inflation yet,” Waller added last week. “For that reason, I’ve been arguing that we could start lowering the policy rate from our current setting.”
These views align with those of Trump, who has repeatedly called on the Fed and Powell to ease monetary policy, citing what he views as a lack of inflation thus far from tariffs and the savings that could be made if the US were paying lower interest on its debt.
Powell has argued for more time to assess whether inflation does in fact move higher over the summer. Williams made a similar argument Wednesday, saying holding rates steady will allow more time to assess the data.
He said he anticipates inflation will come in between 3 and 3.5% percent this year and then fall back to about 2.5% next year before reaching 2% in 2027. The Fed’s goal is to get inflation back down to 2%.
Kugler noted the still-restrictive policy stance is important to keep longer-run inflation expectations anchored.
She said she is not seeing any progress on headline and core inflation the past six months, noting that goods inflation has gone up and that reflects some pass through of increased tariffs.
Kugler stressed that businesses may not yet be passing the higher tariffs to their selling prices because they are waiting for greater clarity.
She also noted that tariff rates could increase further, as seen in newly proposed reciprocal tariffs for several countries and the new tariffs on copper introduced last week, putting further upward pressure on prices.
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