Written by: Internal Analysis & Opinion Writers
Federal Reserve officials are increasingly signaling openness to cutting interest rates in 2025, though they remain divided on when and under what conditions those cuts should occur. The shift comes as policymakers weigh economic uncertainty, inflation trends, and the effects of potential new trade tariffs on the broader economy.
Christopher Waller, a voting member of the Federal Open Market Committee (FOMC), acknowledged that inflation has fallen from its peak but remains above the central bank’s target. He pointed to the Trump administration’s proposed tariffs as a possible inflationary force, estimating they could drive the effective tariff rate up to 15% by year’s end. While these increases may not appear immediately in the data, Waller suggested they could push inflation closer to 3%, depending on how much of the impact businesses pass on to consumers.
Waller also emphasized that while hard economic data has yet to reflect the tariffs’ full effects, soft indicators—such as consumer and business surveys—suggest expectations of slowed growth and rising prices. He noted that if core inflation resumes its downward trend toward the Fed’s 2% goal and the labor market remains strong, rate cuts could be justified later in the year as “good news” cuts, rather than emergency measures.
Austan Goolsbee, president of the Federal Reserve Bank of Chicago and also a voting FOMC member, echoed Waller’s broader caution but warned against assuming tariff-related inflation will be short-lived. He referenced the Fed’s earlier misjudgment of "transitory inflation" during the pandemic recovery, suggesting that past mistakes warrant a more measured approach now. Goolsbee said he remains open to rate cuts in 2025, but only if economic stability continues and inflation moves meaningfully lower.
Mary Daly, president of the Federal Reserve Bank of San Francisco and a future voting member of the FOMC, stressed that inflation must convincingly return to the Fed’s 2% target before any change in policy should be considered. Daly described the Fed’s current position as being at “center court”—able to pivot in either direction depending on how the data evolve. She indicated that the current modestly restrictive stance should remain in place for now to avoid prematurely loosening monetary policy.
Daly reaffirmed her comfort with the Fed’s prior guidance suggesting the possibility of two rate cuts by the end of the year but also noted that these forecasts could change rapidly depending on inflation and labor market conditions. Her remarks emphasized the need for flexibility and patience while navigating what she described as a “highly uncertain” economic environment.
The next FOMC meeting is scheduled for June 17–18, with subsequent meetings set for July, September, October, and December. Investors and analysts will be watching these meetings closely for any concrete shifts in the Fed’s outlook and whether policymakers align more clearly around a timeline for rate reductions.
In the meantime, the housing and mortgage industries remain sensitive to rate speculation. Persistent elevated rates continue to strain affordability for homebuyers, with mortgage rates holding above 6.5% for the 30-year fixed. A clear signal from the Fed on future rate relief could serve as a catalyst for increased housing activity.
While the Fed’s policy path remains uncertain, the tone of recent statements shows that officials are at least acknowledging the possibility of easing. Whether they act—and when—will depend on a complex mix of inflation trends, labor data, and global developments. For now, the message is one of caution, with policymakers watching closely and staying ready to move, but only if conditions are right.
