San Francisco Fed President Mary Daly said overnight that the time has come to seriously consider lowering interest rates, citing the need to preserve the current strength of the US economy. “I really am of the view that it’s time,” she said, adding that two rate cuts this year now look like a “likely outcome.” Nevertheless, Daly noted that her preferred timing points to a potential move in the fall, aligning her with the broader consensus on the FOMC, even if some colleagues are advocating for action as early as July.

Daly downplayed concerns that the latest wave of tariffs would necessarily spark inflation, arguing that companies are increasingly absorbing costs or adapting rather than fully passing them on. “It’s possible it just doesn’t materialize,” she said, referring to fears of lasting inflation driven by trade policy.

Cautioning against excessive delay, Daly warned that waiting for persistent inflation before acting could result in a policy mistake. “It’s useful now to sort of recognize that waiting for inflation to rise or become persistent could leave us behind,” she said, emphasizing her desire to stay ahead of the curve.

Fed Governor Christopher Waller made a rare call for immediate easing, stating that inflation has fallen far enough to support a rate cut as early as this month. Speaking in Dallas overnight, Waller said the policy rate is “too tight” given current inflation dynamics and that July presents a viable window for action. “I just made the argument… we could consider cutting,” he said, while acknowledging he’s “kind of in the minority on this”.

Waller dismissed concerns that recent tariffs should delay easing, noting that their impact has so far been narrow and contained. He emphasized that the Fed’s job is to respond to broad inflation trends, not isolated price spikes. “If inflation is coming down, you don’t need to be as restrictive anymore,” he said.

He also emphasized “it’s not political”, saying his position was grounded in economics. With inflation easing, a steady labor market, and the Fed’s rate still well above its long-run neutral level, Waller said a July move would be justified based on data alone.

St. Louis Fed President Alberto Musalem on warned that it’s too early to judge how deeply tariffs might affect US inflation. He projected the average effective tariff rate could land in the high teens to low 20s, but emphasized uncertainty about how the price impact will play out. “It’s too soon to tell” whether tariffs will trigger a one-time price jump or more persistent inflation, he said.

Musalem noted that Dollar depreciation could add to inflation pressures and highlighted differing reactions across businesses. Some firms may absorb the cost increases, while others are likely to pass them through to consumers depending on their profit margins and pricing power.

Despite the tariff noise, Musalem struck a generally upbeat tone on the macro backdrop. He said the economy is in a “good place,” with the labor market at or near full employment and monetary policy only “modestly restrictive.”

Minutes from the FOMC’s June 17–18 meeting highlighted a notable divergence among policymakers on whether rate cuts are needed this year. “Most participant” still see at least one cut as likely, citing temporary tariff effects, stable inflation expectations, and signs of cooling in the labor market. “A couple” went further, indicating they would be open to a rate cut at the upcoming July meeting if economic data confirms their outlook.

However, “some participants” pushed back against easing and suggested “”no reductions” this year, pointing to stubbornly high inflation and warning of upside risks. They argued that “upside risks to inflation remained meaningful”, with businesses and consumers still expecting higher prices, and with economic activity holding up, rate cuts could be premature. Several added that “may not be far above its neutral level”, diminishing the case for near-term action.

Participants generally agreed that risks of both elevated inflation and a weakening labor market have eased somewhat, but remain elevated. “Some” emphasized inflation risks as still “more prominent”, while “a few” flagged labor market deterioration as the more pressing concern. The broad message from the minutes was one of uncertainty, with many policymakers seeing the need take a “careful approach” in adjusting monetary policy.

Full FOMC minutes here.

US consumers grew more optimistic in June, with inflation expectations moderating and perceptions of job security improving, according to the latest New York Fed Survey of Consumer Expectations.

One-year-ahead median inflation expectations fell to 3.0%, reversing the recent uptick to 3.6% in April and returning to January levels. Longer-term expectations were unchanged at 3.0% for the three-year horizon and 2.6% for five years out.

Despite the easing in the overall inflation outlook, households still foresee higher costs in key sectors. Expectations for gas prices rose to 4.2%, while anticipated medical care inflation jumped to 9.3% — the highest since June 2023. Price expectations for college tuition and rent also climbed to 9.1%, and food inflation is still seen at a firm 5.5%. These category-specific pressures suggest that while headline inflation may be easing, households continue to feel cost pressures in essential areas.

Labor market sentiment strengthened, with the perceived probability of losing one’s job in the next 12 months falling to 14.0% — the lowest since December 2024. The improvement was broad-based across age and education groups.

Full NY Fed survey results here.