A top Federal Reserve official said late Thursday that the central bank should cut its key interest rate later this month, carving out a different view than that of Chair Jerome Powell, who has been harshly criticized by the White House for delaying rate cuts.

“With inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate,” he said. “I believe it makes sense to cut the (Fed’s) policy rate by 25 basis points two weeks from now.” (Twenty-five basis points equals one quarter of an interest rate point.)

The inflation gauge the Federal Reserve relies on most to decide whether to raise or lower U.S. interest rates is likely to cement a decision by the central bank to stand pat at its next meeting at the end of July.

The Bureau of Labor Statistics reported that the consumer price index (CPI), a popular inflation gauge, increased in June to 2.7% on an annual basis as prices rose for consumers.

With June's inflation reading coming in hotter than the month prior, the Fed is under renewed pressure to maintain its current target range for the federal funds rate. Analysts now see little chance of a rate cut in the near term. That means HELOC borrowers are unlikely to see significant rate drops anytime soon.

Christopher Waller, a potential contender to be the next chair of the central bank, said the Federal Reserve should not wait for the labor market to weaken to reduce interest rates.

What is clear is that the current 4.33% median Fed funds target rate remains well above the inflation trend. Even after the acceleration in consumer prices in June, the policy rate is roughly 1.4 percentage points above headline CPI’s one-year change – close to the biggest gap post-pandemic.

If you're thinking about tapping your home's equity, make sure you understand what could happen with rates soon.