Fed Governor Christopher Waller reinforced his call for a July rate cut, arguing that the policy rate is too restrictive given current economic conditions.

In a speech, Waller emphasized that recent tariffs will only cause a “temporary surge” in prices, not a sustained increase in inflation, and that standard monetary policy practice is to “look through” such one-off price-level shocks as long as expectations remain anchored.

Waller pointed to sluggish growth and moderate inflation as reasons for a cut. He noted that real GDP likely expanded just 1% in the first half of 2025 and is expected to remain soft for the rest of the year—well below FOMC estimates of longer-run growth. With unemployment near 4.1% and inflation close to 2% when tariff effects are stripped out, Waller said policy “policy rate should be around neutral”, not nearly 125–150 basis points above the estimated neutral rate of 3%.

Waller also flagged labor market fragility, suggesting that once data revisions are accounted for, private payroll growth is “near stall speed.” With risks to jobs increasing and inflation pressures fading, Waller said, “We should not wait until the labor market deteriorates before we cut the policy rate.”

Full speech of Fed’s Waller here.

San Francisco Fed President Mary Daly said two interest rate cuts this year remain a “reasonable” baseline, as the inflation from tariffs appears less severe than initially feared. Speaking overnight. She projected the policy rate could ultimately stabilize around 3% or slightly above.

Daly downplayed the precise timing of the next move, saying, “Whether it happens in July or September or some other month is really not the most relevant piece.” What matters, she argued, is that the Fed stays on track to avoid overtightening and harming the labor market. “We don’t want to unnecessarily tighten the economy in a way that hurts the labor market or growth,” Daly added.

She also emphasized that bringing inflation down the “last mile” doesn’t require a sharp slowdown. “I wouldn’t want to see more weakness in the labor market,” Daly said. “Which is why you can’t wait forever” to cut rates.

Fed Governor Adriana Kugler said she favors keeping interest rates unchanged “for some time,” citing a resilient labor market and rising inflation pressures from tariffs.

In a speech today, she noted that both headline and core inflation “have shown no progress in the last six months”. Instead, this week’s CPI and PPI report showed core goods prices are now driving inflation higher, “partially reflecting the pass-through of increased tariffs”. Kugler said she expects inflation to accelerate further through the second half of 2025 as “larger effects of tariffs are still coming”.

While acknowledging some moderation in broader economic activity, Kugler emphasized that the labor market remains stable and near full employment. She also flagged geopolitical risks as a potential wildcard for inflation in the months ahead.

Full speech of Fed’s Kugler here.

New York Fed President John Williams warned that tariff effects are only beginning to show up in the data and could push inflation significantly higher in the months ahead. Speaking overnight, Williams said the full impact of US tariffs will take time to materialize, but expects them to add “about 1 percentage point” to inflation through the second half of this year and into early 2026. While he acknowledged current data shows only “modest” impact, he anticipates upward pressure will grow meaningfully.

Williams forecast inflation to average between 3% and 3.5% in 2025, before cooling to around 2.5% in 2026 and only returning to the Fed’s 2% target by 2027. For June specifically, he expects headline inflation at 2.5% and core at 2.75%. Alongside elevated price pressures, he also projects a slowing economy, with growth easing to around 1% this year and unemployment rising to 4.5% from the current 4.1%.

Against this backdrop, Williams endorsed holding rates at current levels. “Maintaining this modestly restrictive stance of monetary policy is entirely appropriate,” he said, suggesting the Fed is in no rush to cut despite cooling growth.

Atlanta Fed President Raphael Bostic warned that rising inflation linked to import tariffs may delay any rate cuts. Speaking to Fox Business, Bostic acknowledged the uncertainty created by Trump’s trade actions. He added that increasing price pressures is now visible across the Southeast. “The price pressures are real,” he said, citing business feedback and internal surveys.

Bostic suggested the June CPI report, which showed broad-based increases in prices—particularly for heavily imported goods—may mark an “inflection point”. He highlighted that headline inflation moved further away from the Fed’s 2% target. “We’ve seen the highest increase in prices that we’ve seen all year,” he added. That backdrop, he argued, warrants caution.

When pressed about the possibility of no rate cut until 2026, Bostic didn’t rule it out. “Everything is on the table,” he said, stressing that the path of policy will depend entirely on how inflation evolves. “If prices continue to move steadily away from our target, then we’ll have to consider what policy response is appropriate.”

The Fed’s latest Beige Book reported a slight pickup in US economic activity from late May through early July, a modest improvement over the previous edition. Five districts saw slight or modest growth, while five were flat and two reported declines.

However, businesses remain wary, with uncertainty still elevated and the overall outlook described as “neutral to slightly pessimistic.” Only two districts expected any pickup in activity moving forward. Labor conditions remained cautious, with only a very slight increase in employment and modest wage growth.

Price pressures continued to build, described as moderate to modest across districts. Input costs tied to tariffs—particularly in manufacturing and construction—were widely cited, with most businesses facing “modest to pronounced” cost pressures.

A growing number of firms are beginning to pass these higher costs to consumers via price hikes or surcharges. Others, constrained by customer price sensitivity, have opted to absorb the increases, compressing margins. With broad expectations for continued cost pressure in the coming months, the Fed noted that “consumer prices will start to rise more rapidly by late summer”.

Full Fed’s Beige Book report here.