Fed weighs September rate cuts as inflation cools and tariffs linger

The Federal Reserve enters its September policy meeting with a widening debate over how aggressively to ease policy, even as inflation shows tentative signs of cooling and political pressure from Washington intensifies. With a robust labor market and consumer prices that are not dropping as quickly as hoped, officials face a choice between stepping in with rate relief and risks to inflation credibility, market volatility, and financial stability.

At the heart of the discussion is whether the Fed should begin or accelerate a cycle of rate cuts. Several policymakers have signaled openness to reducing borrowing costs, particularly if incoming data point to softer inflation and weakening momentum in the labor market. Yet others warn that a sustained retreat could magnify inflation risks if price pressures, especially in the services sector, prove stickier than anticipated. Most recently, the debate has been framed by policymakers’ assessment of how tariffs enacted in previous months might reshape inflation and the broader economy. The central bank’s decision will hinge on whether the slowdown in consumer prices extends to core measures and whether job growth can slow without...