- Economic data that comes in over the summer is expected to be the first batch to offer clear indications about what tariffs will do to prices, according to Federal Reserve Chair Jerome Powell. For that reason, any interest rate cuts are likely to happen in the fall.
Atlanta Federal Reserve President Raphael Bostic believes a July interest rate cut would be premature. Even by its upcoming meeting next month, the Fed still wouldn’t have enough data to understand what’s happening to inflation in the wake of the U.S.’s new tariff regime, according to Bostic.
“I don’t think we’re going to have enough clarity about the trajectory of the economy to really know for sure by July,” Bostic said Monday morning in a CNBC interview. “We’re only going to have one more measure of inflation. We’re going to have a lot that’s unknown about how other policies are impacting the labor market. And without that kind of clarity, I don’t think it’ll be appropriate to move in any direction at this point but rather to wait.”
What exactly will happen to inflation is the central question for the central bank.
Bostic said it was becoming clear that companies would raise prices but that it’s “still quite unknown” when they will and by much. “You do a model and you’re going to have to change it tomorrow and the day after and the day after,” he said.
Textbook economics says that tariff policies lead to a one-time inflationary shock. But that’s theory, not practice. And the current practical realities of the economy are far from textbook. The stock market went from crashing to hitting all-time highs in a month and a half this spring. The U.S. alienated virtually all of its trading partners, then brokered uneasy truces with most of them, all while still keeping historically high tariffs in place. At the same time, the public is still reeling from persistent inflation.
All of which makes for an uncertain outlook with little historical precedent. That’s why some Fed officials, including Chair Jerome Powell, have preached the merits of waiting patiently before deciding to cut rates.
At a congressional hearing last week Powell reiterated the Fed was “well-positioned to wait to learn more about the likely course of the economy” before making any changes to interest rates.
Powell’s strategy to wait for more economic data earned the ire of President Donald Trump. Since retaking office in January, Trump has regularly criticized the Fed’s repeated decisions to hold interest rates steady. His social media posts excoriating Powell have become a fixture of monthly Fed meetings. On Monday, Trump went on social media to post a list of central bank interest rates from other countries on which he had scrawled that the U.S.’s rates should be “lower by a lot.”
However, during his testimony, Powell offered some hints about a potential timeline for rate cuts. The summer months—June, July, and August—would be crucial because that is when Fed officials expect to see the earliest signs of tariffs’ effect on inflation.
“We do expect it to move in the summer, and if we see it not happening, we’ll learn from that,” Powell told members of Congress.
If inflation does move upward this summer, as the Fed expects, it will wait until it subsides to cut rates.
However, if prices don’t rise significantly as a result of inflation, then the Fed could cut rates sooner, Powell said. The other change that could cause an earlier-than-expected rate cut could be a rise in the unemployment rate.
Several other Fed officials such as San Francisco Fed President Mary Daly and New York Fed President John Williams also preferred to wait before cutting rates. But that view is not shared across everyone at the Fed. Federal Reserve governors Michelle Bowman and Christopher Waller said in recent weeks they thought a July rate cut was appropriate, on the grounds that any inflationary spikes would be short-lived, rather than persistent.
And while Powell avoided giving a specific date for when the Fed would cut interest rates, his comments did more clearly lay out the timing for the different scenarios facing the U.S. economy. The summer will be an assessment period. What follows in the fall—either a rate cut or hold—remains to be seen. Until then, the decision on rates would likely have to wait.
Companies are also pushing off their own decisions about how best to respond to tariffs. Bostic said many of the companies he had spoken to told him they were waiting until a clearer economic picture emerged. Some companies, according to Bostic, told him they were experimenting with different approaches to see how consumers would respond and that final strategies might not be in place until 2026.
“So this could be a much more extended period to see the full effects of all of this,” Bostic said.
