The debate over whether the Federal Reserve should make a sharp move on interest rates next month is heating up, but one key voice is urging caution. The idea of a large, sudden rate cut—something in the half-percentage-point range—simply doesn’t appear justified at this stage. While economic signals are mixed, the data isn’t pointing to a need for an aggressive policy shift.

The Inflation Picture: Softer Than Expected

One of the primary reasons for this stance is the behavior of inflation, particularly in the goods sector. Despite concerns that higher tariffs could spark a spike in prices, that surge hasn’t materialized. Instead, price pressures have remained relatively subdued. This suggests that the feared “psychological” feedback loop—where consumers and businesses start expecting higher prices and act accordingly—hasn’t taken hold.

How Businesses Are Handling Tariff Costs

Rather than passing increased import costs directly to consumers, many companies are finding ways to absorb them. This can involve adjusting supply chains, renegotiating supplier contracts, improving operational efficiency, or simply accepting slightly lower margins.

This quiet adjustment process has kept price hikes from cascading through the economy. Think of it less like a catastrophic break in the system and more like a slow drip from a pipe—present, but manageable and unlikely to cause widespread damage.

Why This Matters for Monetary Policy

If inflation is stable and consumer price expectations remain in check, there’s less pressure on the Fed to slash rates dramatically in the short term. Large cuts are typically reserved for moments of acute economic stress, such as a sudden downturn or a major shock to financial markets. For now, the picture is more one of gradual adjustment than emergency intervention.

While rate cuts are still a possibility, they’re more likely to be modest in size if they happen at all. Policymakers appear focused on ensuring any move is proportionate to actual economic conditions—avoiding both the risk of overreacting and the danger of letting inflation get out of control.

For businesses, consumers, and investors alike, the message is clear: the economic pipe might have a leak, but it’s nowhere near bursting.