US Fed Dove Voter: If Trade Risks Subside, the Process of Interest Rate Cut Can Continue

On Monday (June 2), local time, Charles Evans, President of the Federal Reserve Bank of Chicago, stated that the US economy's fundamentals are sound, and if uncertainties related to trade policies are resolved, the US Fed could proceed with interest rate cuts.

During a public dialogue in Davenport, Iowa, on Monday, Evans said, "I still believe that if we can get through this period of volatility, the Fed's dual mandate still looks good to me, and I think we may be on the right track."

The "dual mandate" he referred to are the two core objectives of the US Fed: achieving full employment and maintaining price stability.

Evans, who has a vote on monetary policy this year, leans towards a dovish stance within the Federal Open Market Committee (FOMC).

Evans pointed out that if the US economy continues its current trajectory and the Trump administration's tariff measures ultimately prove less aggressive than initially announced, the Fed's policy interest rate is "likely to decrease significantly" over the next 15 months.

He noted that the labour market remains strong, and the latest inflation data have also been positive. For example, the Personal Consumption Expenditures (PCE) price index rose only 2.1% YoY in April.

However, Evans also emphasized that the current inflation data may not yet reflect the impact of tariffs. He said, "Based on the data released so far, the direct impact (of tariffs) has been surprisingly small. We don't know if that will still be the case in the next month or two."

Evans admitted that, given the experience during the COVID-19 pandemic, he is hesitant to assert that the impact of tariffs is only temporary.

During the pandemic, the Fed mistakenly believed that inflation was transitory, only to see US inflation surge to its highest level in 40 years, forcing the Fed to raise interest rates sharply in response.

Since December last year, the Fed has maintained the target range for the federal funds rate at 4.25% to 4.50%. Policymakers have held rates steady for three consecutive meetings.

The Fed's next interest rate decision meeting will be held from June 17 to 18. According to market futures pricing, investors generally expect the Fed to keep rates unchanged in June and July, before restarting the interest rate cut cycle later this year.