MNI INTERVIEW: Fed Cuts Likely Delayed, Sept In Doubt-Lockhart

Lingering uncertainty over tariffs' effects on inflation and a resilient U.S. economy have diminished prospects for the Federal Reserve to cut interest rates twice by year-end, former Atlanta Fed President Dennis Lockhart told MNI.   

Considering the possibility that data between now and September could show faster inflation or deteriorating job market conditions, or both, Fed Chair Jerome Powell is also unlikely to hint at a September rate cut at Wednesday's press conference, he said. 

"I'm doubtful the air will clear enough by September, given how some of these deadlines have been pushed out and work that remains to be done with trading partners," Lockhart said in an interview. 

"Looking past September, it’ll depend a great deal on what data show. You may see some backing off of the projections for two cuts by year end." (See: MNI INTERVIEW: Fed Seen Cutting Twice This Year - English)

CAN BE PATIENT

The FOMC is fairly split between those who are ready soon to resume lowering rates and those who want to wait until 2026, and many policymakers continue to expect more evidence of price hikes in upcoming inflation reports, Lockhart said. 

"They’re looking for greater clarity on the extent of the passthrough to consumer prices, whether the tariff effect is a set of one-off increases or a more persistent cycle, and whether the gradual slowing of the economy begins to show damage to employment," he said. 

The White House has in hand a trade deal framework with Japan, but matters remain unresolved with the EU, Mexico and Canada, the U.S.'s largest trading partners. (See: CORRECTED-MNI: No US Tariff Exclusion For Aircraft, Spirits)  

"Those questions are still hanging out there, therefore best to wait for evidence we’re past that. And the relative good performance of the economy allows them to be patient."

Should Powell see reason enough to cut in September, he has another opportunity to foreshadow that committee bias at the Jackson Hole conference in late August, Lockhart added. 

DISSENTS

Governors Chris Waller and Miki Bowman could cast dissenting votes at the July 30 meeting, both having expressed support for cutting rates this month, but their votes should not necessarily be interpreted as a widening of divisions among committee members, Lockhart said. 

With no stop to President Trump's calls on the Fed to lower rates, Powell is sure to field a number of questions over Fed independence next week, he said. 

"I doubt permanent damage has been done to Fed independence. It will depend a great deal on how the new chair conducts himself or herself," Lockhart said. 

"Fed chairs are not dictators. They’re leaders of a consensus process, and it takes work and give-and-take to arrive at a consensus." (See: MNI INTERVIEW: FOMC To Go Own Way If Chair Lacks Credibility)