The Fed thinks the economy is just fine, and won't budge on inflation risks

The central debate in monetary policy concerns whether the US economy is fundamentally stable or facing hidden risks that necessitate interest rate cuts. Federal Reserve Chair Jerome Powell and the majority of the Fed believe the economy is robust and that inflation is not yet fully defeated. Powell rejected the idea that high interest rates are causing subtle economic damage, particularly in the labor market. He indicated that the Fed does not see clear evidence of significant harm from current restrictive policies. New economic data released on Thursday generally supports the view of underlying stability and ongoing inflation risks. Personal income and spending rose in June, while a key inflation gauge increased slightly. The number of unemployment claims remained low, reinforcing the Fed's cautious stance. However, two Fed governors dissented on Wednesday, signaling a divergence in opinion. One dissenting governor, Christopher Waller, argued for rate cuts, pointing to subtle warning signs of overly tight monetary policy. Waller suggested that labor market growth might be slowing more than initially appears. Traditional economic principles would typically not support rate cuts during an economic boom, which some Trump administration officials are advocating.