"Fed Mouthpiece": Unity Within the Federal Reserve Fades, Era of Division May Be Emerging

According to ChainCatcher, citing Jintou Data, "Fed mouthpiece" Nick Timiraos recently published an article stating that an internal debate is brewing within the Federal Reserve on how to address the risks posed by Trump's tariffs. This could mark the end of a relatively unified period, as officials may become divided over whether the new rise in costs justifies keeping interest rates elevated.

In recent weeks, Fed Chair Jerome Powell has hinted that the threshold for rate cuts may be lower than it appeared earlier this spring, though a rate cut is not expected this month. Instead, Powell has outlined a "middle path": if inflation data comes in below expectations or the job market shows slight weakness, that may be enough for the Fed to begin cutting rates before the end of summer. This standard is less stringent than the previous threshold—at that time, amid heightened inflation expectations triggered by larger-scale tariff hikes, the Fed might have required more obvious signs of economic deterioration before considering a rate cut.

The tariff increases announced by Trump in April exceeded expectations, sparking concerns about a stagflation scenario of slowing economic growth and rising prices, and disrupting the Fed's plans to resume rate cuts this year. However, since then, two developments have prompted a possible shift. First, Trump scaled back some of the most extreme tariff hikes; second, consumer price increases related to tariffs have yet to materialize. This has provided a crucial test for competing theories on whether tariffs will lead to inflation, and has triggered internal disagreements over how to manage the issue of forecasting errors.