“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, 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 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.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.
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