Waller's First FOMC as Chair: Will 2025 Rate Cuts Be Walked Back?
Miles Bennett
The Fed is split over whether to reverse its three 2025 rate cuts. New Chair Kevin Warsh faces his first real policy decision at the July 28-29 FOMC meeting — a hawkish bloc that never endorsed the last two cuts is forming, and a rate hike is now on the table.
What is the hawks' core argument?
The original cuts were meant to guard against a labor-market downturn — but that risk never materialized.
Inflation has been running at 3%–4%, well above the 2% target.
This means → at the current 3.5%–3.75% target range, the real interest rate — adjusted for inflation — is near zero or even negative. Policy is looser than the Fed itself intended.
In plain terms = the rate looks high on paper, but prices are rising faster, so money is still too cheap.
Why are the Fed's usual analytical tools failing?
Minneapolis Fed President Neel Kashkari noted that most Fed inflation tools start from the labor market — but labor is not driving this round of inflation.
The Fed's monetary-policy report found wage growth broadly consistent with the 2% target — the first such assessment in five years.
This means → three external forces are doing the heavy lifting: import tariffs, energy and fertilizer disruptions from the Iran war, and AI-driven demand — all outside the Fed's standard models.
How have positions inside the Fed shifted?
Governor Christopher Waller led the push for last year's rate cuts.
Last week he said the risks have "completely flipped", and his policy lean shifted hawkish.
This reflects a striking admission: even the architect of last year's easing now concedes the premises behind those cuts no longer hold.
What are the key markers before the July meeting?
Warsh will testify before Congress for the first time as Chair this week; June CPI data will be released alongside the hearing.
A hot core CPI print → ammunition for a hike; a soft reading → support for holding steady.
BNP Paribas chief U.S. economist James Egelhof expects the Fed to hike three times starting no later than December.
Why does Warsh's testimony tone matter so much?
Warsh's first meeting last month ended with a unanimous vote to hold rates.
How he frames the outlook in testimony is the market's most direct signal of where the July meeting lands.
In plain terms = whether Warsh keeps the consensus intact or lets the rate-hike debate go public will define the Fed's next move.
Content is for reference only, not financial advice.