Fed Divisions Center on Inflation Outlook, Not Policy Direction, Timiraos Says

Federal Reserve officials’ differences are mainly about how the economy will evolve, rather than a fundamental conflict over whether to raise or cut rates, Wall Street Journal reporter Nick Timiraos said. According to Jin10, Timiraos said the minutes of the Fed’s June meeting showed two possible scenarios inside the central bank. If inflation stays elevated, nearly all officials think higher interest rates need to be maintained, and policy could even be tightened further. But if inflation quickly falls back to the 2% target, nearly all officials think the current rate can be maintained, and rates could be cut in the future. Timiraos said the phrase “quickly falls back to 2%” was particularly important because it leaves room for policy adjustments. He added that what officials are truly focused on is whether inflation will keep rebounding or return to a downward path. Timiraos said the Fed’s next move still depends on economic data, especially inflation. He noted that markets had previously bet on rate cuts, but the latest minutes showed significant uncertainty remains around the policy outlook.