Another Fed Official Supports Rate Cut—Goldman Warns of Risks if Delayed

The Fed Faces Internal Division as Rate Cut Debate Intensifies

The July meeting of the Federal Reserve may be remembered as one of the most divided in over three decades, with two prominent board members, Michelle Bowman and Christopher Waller, voting for a rate cut. This decision stood in contrast to the majority of the committee, including Chair Jerome Powell, who opted to keep interest rates steady. The divergence highlights growing uncertainty within the central bank about the direction of monetary policy.

Meanwhile, the TLT ETF is showing signs of breaking through key resistance levels, as indicated by recent market charts. Analysts are watching closely to see if this trend continues and what it might signal for the broader financial landscape.

Dismal Jobs Report Sparks Urgency for Policy Shifts

A disappointing July jobs report, which revealed that 258,000 jobs were lost in previous months, has intensified calls for earlier rate cuts. This data has prompted both central bankers and Wall Street analysts to reconsider their stance on monetary policy, even among some of the Fed’s most hawkish members.

Minneapolis Federal Reserve President Neel Kashkari, known for his support of tighter monetary conditions, recently expressed a shift in perspective. During an appearance on CNBC's Squawk Box, he stated that the economy is slowing down and that it may soon become appropriate to adjust the federal funds rate.

Kashkari emphasized that if current trends persist, rate cuts could be necessary. He also raised doubts about the long-term inflationary impact of Trump-era tariffs, noting that their effects may take several quarters to fully materialize.

“I don't have confidence yet in what the ultimate effects of tariffs are going to be on inflation,” Kashkari said. “Tariffs are just such an unknown right now.”

Goldman Sachs Warns of Economic Stagnation

Economists at Goldman Sachs have echoed similar concerns, warning that the U.S. economy is nearing a point of stagnation. Chief economist Jan Hatzius highlighted that job market weakness is being driven by a broader economic slowdown, exacerbated by trade tensions.

In a recent note, Hatzius warned that job cuts and revisions are becoming self-reinforcing, reinforcing the idea that the economy is losing momentum. He noted that U.S. real GDP grew just 1.2% annualized in the first half of 2025, significantly below the firm’s estimate of potential output.

Hatzius attributes part of the current softness to higher tariffs, which are affecting output, consumer spending, and hiring. He added that real disposable income and consumer spending are likely to grow very slowly, not only due to weak job growth but also because much of the impact of tariffs on consumer prices is still ahead.

Goldman Projects Multiple Rate Cuts in 2025

Goldman Sachs’ base case remains for three 25-basis-point rate cuts in September, October, and December, followed by two more cuts in the first half of 2026. However, the firm is keeping an eye on future data, particularly the next jobs report. If there is another uptick in unemployment or a spike in initial claims, a 50-basis-point cut in September could be considered.

Currently, markets are pricing in a 93% probability of a 25-basis-point rate cut in September, with a 61% chance of a second cut in October. These expectations reflect growing anticipation for a shift in monetary policy, driven by weakening economic indicators and evolving assessments of inflationary pressures.

As the Fed navigates these challenges, the internal divisions and external pressures suggest that the path forward for interest rates will be anything but straightforward. The coming months will be critical in determining whether the central bank can balance its dual mandate of price stability and maximum employment in an increasingly uncertain economic environment.