The US Federal Reserve is expected to keep interest rates on hold at its meeting this week, despite President Donald Trump’s continued push for a cut. However, internal debate is expected to be fierce as two Trump-appointed governors, Christopher Waller and Michelle Bowman, are expected to oppose and support a 25 basis point rate cut. They are concerned about a slowdown in private job growth and a worsening labor market if policies are not eased.
Most Fed policymakers still believe that the inflation risk from Trump’s import tariffs is more worrisome than the labor market slowdown. Despite progress in trade talks with Japan and the EU, overall tariff rates are still the highest in 90 years and have begun to weigh on consumer prices, pushing inflation to an annual rate of 3.5% in June.
Despite the political pressure, economic data has been mixed. Gross Domestic Product (GDP) is expected to rise above $30 trillion for the first time, while consumer spending remains strong. However, business investment is starting to decline, and the housing and construction sectors are in prolonged decline. Demand for new and existing homes remains weak, with mortgage rates hovering around 7% and continuing to weigh on buyers.
This reflects the Fed’s dilemma in determining the direction of monetary policy: keep interest rates on hold to control inflation, or start easing to support growth and the labor market. With domestic and external pressures, this meeting is set to be one of the most important and controversial in recent memory.
