Two Fed dissenters appeared alone in favoring rate cut as tariff debate simmers: meeting minutes

 The two Federal Reserve policymakers leave interest rates unchanged last month 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 Wednesday showed.

“Almost all participants viewed it as appropriate to maintain the target range for the federal funds rate at 4.25% to 4.50% 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, favoring 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.

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Not even 48 hours after the conclusion of last month’s meeting, data from the Labor Department appeared to validate the concerns of Bowman and Waller when it showed far fewer jobs than expected were created in July, a rise in the unemployment rate and a drop in the labor force participation rate to the lowest level since late 2022.

More unsettling, though, was an 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 President Donald Trump that he fired the head of the Bureau of Labor Statistics.

Data since then, however, has provided some fodder for the camp more concerned that 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.

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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 tradeoffs ahead if elevated inflation proved more persistent while the job market outlook weakened.

Trump’s pressure campaign

Heading into the release of the minutes, CME’s FedWatch tool assigned an 85% probability of a quarter-percentage-point reduction in the Fed’s policy rate at the September 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, Wyo., which is hosted by the Kansas City Fed.

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Powell’s keynote speech on Friday morning – 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% target.

The lack of rate cuts since Trump returned to the White House has agitated the Republican president, and he regularly lashes out at Powell for not engineering them.

Trump is already in the process of screening possible successors to Powell. After the unexpected resignation earlier this month of one of the seven Fed governors, Trump has a chance to put his imprint on the central bank soon.

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The presidenthas 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 Miran will win Senate confirmation before the Fed’s next meeting.

On Wednesday 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.