The debate within the Federal Reserve (FED) of the United States On the possibility of cutting interest rates in the remainder of 2025 is red alive. The intern intensified after the implementation of new tariffs by President Donald Trump, which generate inflationary pressures in the US economy. In this context, the Fed is divided between those who consider that the impact will be passenger and those who warn about more persistent inflation that would force to maintain a contractive monetary policy.
The governor of the Fed, Christopher Waller, was clearly located in the first group. In a recent speech in South Korea, he said that the effects of tariffs on inflation will probably not be lasting, and that price expectations remain “anchored.” According to Waller, this opens the door to a more lax policy towards the end of the year, as long as inflation follows its descending course and the labor market maintains its strength.
“Given my conviction that any tariff -induced inflation will not be persistent, support considered the possible effects of tariffs on short -term inflation when setting the monetary policy rate,” said the official, aligning with the position of the White House. In fact, Trump himself has reiterated his request that the Fed lowers rates to relieve credit costs and promote economic growth.
However, Not everyone inside the Fed shares this vision. The president of the Federal Reserve of Minneapolis, Neel Kashkari, and the president of the Fed de Dallas, Lorie Logan, expressed concern about the possible prolonged effect of tariffs on prices. Kashkari warned that trade negotiations could extend for months or even years, and that in that context the tariffs could increase in response to commercial partners.
For his part, Logan warned that cutting rates too soon could generate counterproductive effects. “A central bank can always boost employment by cutting interest rates. People could enjoy that for a while. But over time, excessive cuts would trigger an inflationary spiral,” he said.
Logan also emphasized that rates are currently in a “good place” and that patience is needed to evaluate the data before modifying monetary policy. In his vision, it is preferable to wait and see how risks evolve in both directions: inflation and employment.
The bid within the Fed is not less, since any decision on interest rates in the United States has a strong global impact. In the case of Argentina, the effect is multiplied given the vulnerability of its economy compared to international financial flows and the dependence of dollar debt.
How does this discussion impact on the Argentine economy?
The possibility of the Fed maintaining the high rates for longer represents bad news for emerging markets, including Argentina. A contractive monetary policy in the United States strengthens the dollar globally, which tends to generate pressure on the currencies of peripheral countries, such as Argentine weight. This, in turn, Access to external credit increases, cools capital flows to the region and forces to maintain high rates at the local level to avoid greater dollarization.
In addition, if the Fed postponed the cuts, the Argentine sovereign bonds in dollars could face greater pressure, since global investors would continue to seek refuge in American assets. On the other hand, a turn towards a more flexible policy – as the one proposed by Waller – could partially relieve that tension, improve access to financing and give some respite to the price of local assets.
Another relevant effect is linked to the Price of raw materials. A weakest dollar product of rates decreases to boost commodities prices, which could benefit Argentine exports. It is not a minor issue for a country that needs genuine dollars to stabilize its economy.
In short, the Fed debate is not just a matter of domestic monetary policy: it is also a key factor for the financial future of countries such as Argentina, which observes carefully each signal that comes from Washington. While President Javier Milei seeks to recompose reserves, reduce country risk and attract investments, the behavior of the Fed will be decisive to define how uphill that path will be.
Source: Ambito
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