June Minutes Point to Divided Federal Reserve, and Rate Cuts by Year-End

Federal Chair Jerome Powell checks his watch as he arrives to lead an open meeting of the Federal Reserve Board in June. (SAUL LOEB / AFP / Getty Images)

Most Federal Reserve officials expect to cut interest rates this year, but disagreement is mounting over when, why, and by how much.

Minutes from the central bank’s June 17-18 meeting, released Wednesday, showed a committee increasingly divided as it weighs conflicting signals from inflation, the labor market, and fiscal policy. While a few officials indicated they could support a cut as soon as July, others said no reductions would be warranted at all this year.

The June dot plot—a chart showing individual policymakers’ forecasts for rates—showed that 10 members of the Federal Open Market Committee projected two cuts in 2025, while nine predicted fewer. That split, more pronounced than in previous meetings, comes as the Fed navigated rising price risks from tariffs and possible early signs of a softening job market.

“Most participants assessed that some reduction in the target range for the federal-funds rate this year would likely be appropriate,” the minutes read. But, “[a] couple of participants noted that, if the data evolve in line with their expectations, they would be open to considering a reduction…as soon as at the next meeting.”

Those officials were likely Vice Chair for Supervision Michelle Bowman and Gov. Christopher Waller, both of whom have publicly endorsed the possibility of a July cut. Still, markets see that as unlikely following a strong headline June jobs report. Investors now assign a 95% chance that the Fed holds rates steady in July and a 66% chance of a cut in September, according to CME’s FedWatch tool.

Some Fed officials argued there should be no rate cuts at all this year, citing the risk that inflation could rise, including as a result of President Donald Trump’s proposed tariffs. Others pointed to early signs of stress on consumers and uneven economic growth.

According to the minutes, policymakers were particularly concerned about potential stagflation, where inflation proves persistent while the labor market weakens. At the same time, officials noted that overall uncertainty had declined somewhat since May. The minutes also flagged that some Fed members had observed a shift among lower-income households toward cheaper goods, a sign of increasing financial strain that could amplify the impact of tariff-related price increases.

“Despite headwinds, the economy continues to trudge along, giving policymakers time to assess the projected impact from tariffs,” said Jeffrey Roach, chief economist for LPL Financial, in a note. “The FOMC is comfortable remaining in wait-and-see mode.”

The Fed left interest rates unchanged in June at a range of 4.25%-4.50%, while its updated forecast signaled two rate cuts by year-end. Markets have taken the signal seriously, but Wednesday’s minutes underscore how fragile that consensus is.

Still, some on the committee struck a more optimistic tone. Several officials said the inflationary effects of tariffs could be limited if trade deals are reached soon or if firms adjust supply chains and pricing strategies. A few even highlighted business investment in artificial intelligence as a potential boost to productivity.

The minutes depict a Federal Reserve that is inching closer to a policy shift, even if the path ahead remains murky.

Write to Nicole Goodkind at nicole.goodkind@barrons.com