Stronger-than-expected U.S. employment gains in June have strengthened the Federal Reserve’s case for holding interest rates steady as it seeks to curb inflation.
Some Fed officials believe that it could take a year or more for the economy to fully absorb the effects of tariffs and other trade policies, signaling a potentially prolonged period of heightened inflation.
Atlanta Fed President Raphael Bostic indicated that the process of adjusting to these policy shifts will not be a rapid one, prompting the Fed to remain cautious before easing rates.
The June jobs report pointed to continued labor market strength, with payrolls rising by 147,000 and the unemployment rate unexpectedly dropping to 4.1%. This suggests the U.S. economy remains resilient despite uncertainty over tariffs.
This robust data has diminished the urgency for near-term rate cuts, contrary to calls from some quarters in Washington advocating for immediate easing in response to weaker inflation.
Some Federal Reserve voices, such as Christopher Waller and Michelle Bowman, had earlier suggested rate cuts might be warranted soon to preempt labor market softening. However, the latest data have undermined those arguments.
The central bank, which kept its benchmark rate unchanged in the 4.25%-4.50% band last month, now faces renewed debate over the timing and scale of future adjustments. While President Trump has openly pushed for immediate and significant rate reductions, citing recent softer inflation readings, Fed officials remain cautious, pointing to upward inflation risks connected to tariffs.
Chair Jerome Powell has emphasized a wait-and-see approach, reiterating the need for more clarity on the economy before any policy shift. Market expectations have shifted accordingly, with traders now anticipating the first rate cut likely in September, and two reductions in total by year-end, rather than the three cuts that had previously been expected.
Meanwhile, Treasury Secretary Scott Bessent commented that recent data showed little inflationary impact from tariffs so far and suggested that any delay in reducing rates might result in a larger adjustment later in the year.
Powell, for his part, intends to complete his term as chair, dismissing calls for early resignation from President Donald Trump amid rising political pressure.
