「Fed Whisperer」: The Fed's internal 'unity' is no more, ushering in an era of division

July 10th. Nick Timiraos, a reporter from The Wall Street Journal known as the "Fed Whisperer", wrote that there is an internal debate within the Federal Reserve regarding how to handle the risks posed by Trump's tariffs. This might signify the end of a relatively unified period, with officials potentially having differences in opinion on whether the new cost growth should be a factor for maintaining high interest rates. In recent weeks, Federal Reserve Chairman Powell has suggested that the threshold for rate cuts may be lower than it was in the spring. However, no rate cut is anticipated this month. Instead, Powell has outlined a "middle path": if inflation data falls below expectations or the labor market shows a slight decline, this might be sufficient to prompt the Fed to begin cutting rates before the end of the summer. This standard is lower than the previously more stringent threshold - when faced with a substantial tariff increase that triggered high inflation expectations on a larger scale, the Fed might have needed more obvious signs of economic deterioration to consider a rate cut. Trump's announced tariff increase in April exceeded expectations, causing concerns about economic growth slowdown and stagflation and disrupting the Fed's plan to resume rate cuts this year. However, since then, two developments have led to a possible change. Firstly, Trump has reduced some of the most extreme tariff hikes. Secondly, the consumer price increases associated with tariffs have not occurred. This has presented a key test for the theory of competitive inflation resulting from tariffs and has led to internal disputes on how to handle forecasting errors. (FXStreet)