Minutes released on Wednesday showed that Fed officials expressed concerns about labor market conditions and inflation during the July meeting, but most believe it is too early to cut interest rates.
The meeting minutes reflect the divisions of opinion among central bank officials—despite two Federal Reserve governors advocating for a rate cut, the final vote resulted in a decision to keep the benchmark interest rate unchanged.
Policymakers pointed out that the risks facing the economy are rising and require close attention, but it is generally believed that the current policy stance is an appropriate choice.
"Participants generally pointed out that both sides of the committee's dual mandate face risks, emphasizing the upside risk of inflation and the downside risk of employment," the meeting minutes stated. Although "most participants believe that the upside risk of inflation is the more significant of the two risks," several thought that "the downside risk of employment is a more prominent threat."
Board members Christopher Waller and Michelle Bowman voted against the decision to maintain interest rates stable, as they preferred the Federal Open Market Committee to start lowering the benchmark interest rate. Since December of last year, the target range for the federal funds rate, which sets the overnight lending rate between banks but serves as a benchmark for other consumer rates, has remained at 4.25%-4.5%.
This is the first time in over 30 years that several board members voted against the interest rate decision.
President Donald Trump's tariff policy was the core topic of discussion.
"Regarding the upside risk of inflation, participants pointed out that the uncertainty of tariff policies and the risk of inflation expectations potentially becoming unanchored are concerns," the meeting minutes stated. The document also noted that "the timing, magnitude, and persistence of this year's tariff increases remain highly uncertain."
Against an increasingly intense political backdrop, attending officials expressed differing views on the direction of economic policy. An internal assessment found that economic growth in the first half of the year was "weak," despite the unemployment rate remaining low.
Several participants expressed uncertainty about the impact of tariffs on inflation, while other officials were concerned that the employment situation was beginning to show cracks, requiring policy stimulus to prevent further deterioration.
"Participants pointed out that if inflation remains persistently high while the labor market outlook worsens, the committee may face difficult trade-offs," the minutes summary stated. Interest rate decisions will depend on "the extent of deviation of various variables from the committee's targets and the time frame expected for these gaps to close."
Two days after this meeting, data from the Bureau of Labor Statistics showed that non-farm job growth in July not only continued to be weak but that the growth rates for June and May were significantly revised down.
Even without knowing the data, Federal Reserve officials pointed out that "as economic activity and consumer spending growth slow, the risks to employment have significantly increased, and some new data indicate that labor market conditions are weakening."
These minutes were released two days before the Federal Reserve's core agenda this week: Chairman Jerome Powell will deliver a keynote speech at the central bank's annual meeting in Jackson Hole, Wyoming on Friday morning.
Powell is expected to clarify the Fed's short-term direction on interest rate policy and long-term policy outlook through this speech.
Trump has consistently applied intense political pressure on the Federal Reserve to cut interest rates. The president has derided Powell as "stupid," a "loser," and used other derogatory terms while criticizing the Federal Reserve Board.
With the resignation of Governor Adriana Kugler earlier this month, Trump will have another opportunity to nominate his candidate. Powell's chair term will expire in May 2026, but he can continue to serve as a governor until 2028 if he wishes. The latest twist is that Trump has called for Governor Lisa Cook to resign, citing allegations of mortgage fraud related to federal loan applications for properties in Georgia and Michigan.
Regarding Powell's chair position, the White House has identified 11 potential candidates, including several current and former Federal Reserve officials, economists, and Wall Street strategists.