The U.S. Federal Reserve's internal conflict over whether to freeze or cut interest rates in July intensifies

The U.S. Federal Reserve (Fed) is showing clear internal differences regarding whether to lower the benchmark interest rate in July. According to the minutes of the June meeting released by the Federal Open Market Committee (FOMC), while some members hinted at an open stance on early rate cuts, the majority maintained a more cautious approach, citing that inflation rates still exceed the 2% target.

These minutes reveal that opinions are clearly divided within the Fed regarding policy direction ahead of the FOMC meeting at the end of July. Some individuals argue for rate cuts based on signs of inflation slowdown, while concerns persist that import tariffs could reignite price pressures. Tariffs are likely to remain an uncertainty factor in conjunction with the trade policy stance of the Trump administration.

The minutes stated that "some members could consider lowering rates at the July meeting if economic indicators proceed as expected." However, the actual decision remains uncertain due to limited support. Conversely, "some members judged that no rate cuts are necessary this year, emphasizing that recent inflation indicators still exceed the 2% target."

The core Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation metric, increased 2.7% year-on-year in May. This suggests that inflation pressure remains substantial and could serve as grounds for the Fed to continue maintaining interest rates. Additionally, recent employment indicators show a favorable trend, further amplifying voices that the Fed need not rush into rate cuts.

Market expectations reflect this atmosphere. According to the CME Fed Watch, the market currently leans towards the Fed maintaining benchmark rates in July and potentially implementing cuts no earlier than September. Some investors believe the Fed will wait and observe inflation and employment conditions before making a decision.

Jeffrey Roach, chief economist at LPL Financial, noted, "The Fed is still maintaining an observational stance" and "Given that the U.S. economy shows steady growth despite external volatility, the Fed has the opportunity to wait and assess the impact of tariffs."

Currently, the Fed is pursuing the dual mandate of suppressing inflation while maintaining employment. With the Trump administration's tariff policies emerging as a variable, additional complexity is being added to the Fed's monetary policy decisions. While it remains fluid what judgment will be made at this month's meeting, the market is on edge, knowing that policy decisions made amid such clear divisions could trigger significant market reactions.

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