US Fed dissenters appeared alone in favouring rate cut at July meeting, minutes show
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Fed vice-chair for supervision Michelle Bowman (left) and governor Christopher Waller both voted against the decision to leave the benchmark interest rate unchanged.
PHOTO: REUTERS
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- July's Fed meeting showed almost all participants favoured holding interest rates steady at 4.25-4.5%, despite dissents from Bowman and Waller, who wanted a cut.
- Disappointing jobs data emerged post-meeting, with significant downward revisions, validating Bowman and Waller’s concerns about a weakening job market.
- Policymakers debated tariffs' impact on inflation; Powell's upcoming speech could signal a shift toward rate cuts or continued inflation concerns.
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WASHINGTON - The two Federal Reserve policymakers who dissented against the US central bank decision’s to leave interest rates unchanged in July appear not to have been joined by other policymakers in voicing support for lowering rates at that meeting, a readout of the gathering released on Aug 20 showed.
“Almost all participants viewed it as appropriate to maintain the target range for the federal funds rate at 4.25 per cent to 4.5 per cent at this meeting,” the minutes of the July 29-30 meeting said.
Fed vice-chair for supervision Michelle Bowman and governor Christopher Waller both voted against the decision to leave the benchmark interest rate unchanged, favouring instead a quarter percentage point reduction to guard against further weakening of the job market.
It was the first time since 1993 that more than one Fed governor dissented against a rate decision.
Not even 48 hours after the conclusion of July’s meeting, data from the Labour Department appeared to validate the concerns of Ms Bowman and Mr Waller when it showed far fewer jobs than expected were created in July, a rise in the unemployment rate and a drop in the labour force participation rate to the lowest level since late 2022.
More unsettling, though, was a historic downward revision for estimates of employment in the previous two months.
That revision erased more than a quarter of a million jobs thought to have been created in May and June and put a hefty dent in the prevailing narrative of a still-strong-job market.
The event was so angering to US President Donald Trump that he fired the head of the Bureau of Labour Statistics.
Data since then, however, has provided some fodder for the camp more concerned that Mr Trump’s aggressive tariffs risk rekindling inflation to hold their ground against moving quickly to lower rates.
The annual rate of underlying consumer inflation accelerated more than expected in July and was followed by an unexpectedly large jump in prices at the producer level.
The minutes showed officials continued an active debate on the effects of tariffs on inflation and the degree of restrictiveness in their policy stance.
Several policymakers commented that the current level of the federal funds rate may not be far above its neutral level, where economic activity is neither stimulated nor constrained.
Fed policymakers assessed that the effects of higher tariffs had become more apparent in some goods’ prices but that the overall effect on the economy and inflation remained to be seen, the minutes showed.
Looking ahead, participants noted they may face difficult trade-offs ahead if elevated inflation proved more persistent while the job market outlook weakened.
Trump pressure
Heading into the release of the minutes, financial services company CME’s FedWatch tool assigned an 85 per cent probability of a quarter percentage point reduction in the Fed’s policy rate at the Sept 16-17 meeting.
That rate has been unchanged since December.
The minutes were released just two days before a highly anticipated speech from Fed chair Jerome Powell at the annual economic symposium near Jackson Hole, Wyoming, which is hosted by the Kansas City Fed.
Mr Powell’s keynote speech on Aug 22 – set to be his last such address as head of the central bank, with his term expiring next May – could show whether he has joined ranks with those sensing the time has come for steps to shield the job market from further weakening or if he remains in league with those more wary of inflation in light of its moves away from the Fed’s 2 per cent target.
The lack of rate cuts since Mr Trump returned to the White House has agitated the Republican President, and he regularly lashes out at Mr Powell for not engineering them.
Mr Trump is already in the process of screening possible successors to Mr Powell.
After the unexpected resignation earlier in August of one of the seven Fed governors, Mr Trump has a chance to put his imprint on the central bank soon.
The President has nominated Council of Economic Advisers chair Stephen Miran to fill the seat recently vacated by former Fed governor Adriana Kugler, a term that expires at the end of January.
It is unclear whether Mr Miran will win Senate confirmation before the Fed’s next meeting.
On Aug 20, Mr Trump demanded that Fed governor Lisa Cook resign from the central bank over allegations of wrongdoing connected to mortgages on properties she owns in Georgia and Michigan. REUTERS
