Signals coming from the heart of U.S. monetary policy suggest a potential shift. The Federal Reserve may be ready to cut interest rates as early as July—if the inflationary effects of President Donald Trump’s sweeping tariffs remain limited. The next Fed meeting to address the future of rates will be in late July.

That was the message delivered Monday by Federal Reserve Vice Chair for Supervision Michelle Bowman during remarks in Prague. Her comments echo those of Fed Governor Christopher Waller, who has also opened the door to a rate cut next month. Together, they reflect growing internal debate within the central bank.

“Should inflation pressures remain contained, I would support lowering the policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market,” Bowman said in her prepared statement.

The benchmark federal funds rate currently stands at 4.25% to 4.50%, unchanged so far this year. While President Trump has repeatedly urged the Fed to lower rates, the central bank has opted to hold steady, choosing instead to assess the impact of the administration’s economic measures.

Since returning to office in January, Trump has imposed a 10% tariff on nearly all trading partners, in addition to significantly higher duties on imports of steel, aluminum, and automobiles. These actions initially raised alarms about potential inflation spikes and slower growth.

But so far, those fears have not materialized. Bowman noted that the data have not shown any significant effects from tariffs or related policies, suggesting any impacts may be delayed—or weaker than previously expected. “And, all considered, ongoing progress on trade and tariff negotiations has led to an economic environment that is now demonstrably less risky,” she added.

Still, concerns remain. Bowman pointed to recent signs of softening in consumer spending and “fragility in the labor market.” In a climate marked by global tensions, financial volatility, and political pressure from the White House, the Fed faces a complex policy challenge.

For now, the central bank has penciled in two rate cuts for 2025. The next policy meeting is scheduled for late July, and officials will likely center the debate around how to keep the economy growing without triggering new inflationary pressures.

Fed Chair Jerome Powell has emphasized that policymakers can afford to wait in order to better understand the impact of Trump’s tariffs. His cautious tone contrasts with Trump’s more urgent calls for monetary easing—underscoring the ongoing friction between the White House and the independent central bank.

Meanwhile, the real-world impact—especially for Latino households and small businesses across the U.S.—remains uncertain. If tariffs drive up prices on everyday goods, consumers may feel the strain. But if inflation remains in check and job growth continues, a rate cut could lower borrowing costs and help sustain economic momentum.

Beyond interest rates, Bowman also addressed upcoming changes to bank capital rules. She described potential adjustments to leverage requirements as a “first step” toward reforming what she called “distorted capital requirements.”

The message from Prague is clear: although Trump’s tariffs remain controversial, they have yet to deliver the kind of economic disruption that would force the Fed to stay on the sidelines. As signs of slowing emerge in key indicators, the central bank appears increasingly open to acting sooner rather than later.

With information from AFP