The minutes show that internal divisions within the Federal Reserve have intensified, and expectations for a rate cut in September have warmed
The minutes of the Federal Reserve's meeting on July 29-30 show that internal divisions over monetary policy have intensified, with some officials supporting a 25 basis point rate cut. The decision to maintain interest rates was made by a vote of 9 to 2, reflecting differing views on tariffs, inflation, and the labor market. Some officials believe that the impact of tariffs on inflation is limited, while others are concerned that sluggish economic activity may dampen household consumption spending. Analysts believe that data revisions may exacerbate the Federal Reserve's concerns about an economic slowdown
According to the Zhitong Finance APP, the minutes of the Federal Reserve's meeting from July 29 to 30, released on Wednesday, show that there is increasing divergence within the Federal Open Market Committee regarding the monetary policy path. There are differing opinions on the impact of tariffs, inflation risks, and the state of the labor market, highlighting the complex situation faced by decision-makers.
The meeting ultimately decided to maintain the interest rate in the range of 4.25% to 4.5% with a vote of 9 to 2. However, governors Bowman and Waller voted in favor of a 25 basis point rate cut, marking the first time since 1993 that two Federal Reserve governors disagreed with the majority opinion.
The minutes indicate that officials are divided on the impact of tariffs on inflation. Some committee members believe more time is needed to assess the impact of trade policies on prices; others emphasize that waiting for clear signals is "neither feasible nor appropriate." Some officials pointed out that the transmission speed of tariffs pushing up prices may be slower than expected, thereby alleviating concerns about inflation. However, "hawks" warned that there has been increased pressure in areas such as service prices recently.
Kansas City Fed President Esther George stated in a speech last week that the impact of tariffs on inflation is limited, partly because the Federal Reserve has maintained stable interest rates. She also explicitly opposed calculating so-called "inflation excluding tariffs," calling it a "meaningless and unmeasurable concept." In contrast, Bowman believes that the price increase due to tariffs is merely a one-time shock and should not be a reason to hinder rate cuts.
Regarding the labor market, some officials noted that the unemployment rate remains low, with employment close to "maximum employment" levels; others pointed to slowing wage growth and a decrease in new job openings, which may suggest that labor demand is cooling. The minutes mentioned, "Several participants indicated that they expect economic activity growth to remain sluggish in the second half of this year." At the same time, some officials observed that the slowdown in real income growth may be suppressing household consumption expenditures.
It is noteworthy that these concerns arose before the release of the July employment report, which subsequently revised down the non-farm payrolls for May and June by 258,000. Analysts believe this data revision may further exacerbate the Federal Reserve's internal concerns about economic slowdown.
Journalist Nick Timiraos, known as the "Fed's mouthpiece," pointed out that the minutes did not reveal much new content but reinforced several aspects of information. First, as indicated in Powell's post-meeting press conference, the overall tone of the July meeting was hawkish (at least compared to market expectations); second, decision-making is highly dependent on upcoming data. Especially after the release of the employment report on August 1, more officials are open to the idea of a rate cut in September.
Timiraos also stated that while the decision to maintain interest rates in July received broad support, a few officials are already aligning more closely with Waller and Bowman, suggesting they may support a rate cut at the meeting on September 16-17.
External political pressure has also added complexity to this divergence. President Trump has repeatedly called for significant rate cuts and criticized Fed Chairman Powell's leadership. Powell has stated his intention to serve his term until May 2026. Notably, both Waller and Bowman were appointed by Trump and are viewed by the market as potential successors In a post-meeting statement, Waller reiterated his call for a gradual interest rate cut of up to 150 basis points, arguing that a "wait-and-see strategy is too cautious" and could cause policy to "fall behind the situation." Powell commented at the press conference that Bowman and Waller's views are "strong and logical," and emphasized that the meeting discussions were "very thorough."
