Two Fed Governors voted to cut rates at the July meeting.
Two Dissents in July
Here is the FOMC Press Release
Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year. The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; and Jeffrey R. Schmid. Voting against this action were Michelle W. Bowman and Christopher J. Waller, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting. Absent and not voting was Adriana D. Kugler.
Bowman and Waller are Trump appointees.
Fraying Consensus
The Wall Street Journal reports Fed Holds Rates Steady, but Two Officials Back a Cut
The Fed made very few changes to its policy statement, indicating no appetite to hint at a potential cut.
Dissents from two Fed governors and Trump appointees, Michelle Bowman and Christopher Waller, offered limited insight into the Fed’s upcoming moves. Both favored reducing rates by a quarter point on Wednesday. Bowman’s dissent marked a notable shift for someone who had been a leading advocate for tighter policy in recent years and who opposed an initial cut from higher levels last September.
Waller had signaled two weeks ago his support for lowering rates, which coincides with his nascent candidacy to succeed Powell as chair next spring. He said earlier this month he was concerned about keeping rates too high for an economy that lacks the momentum to drive inflation higher—a view shared by some economists and former Fed officials.
It was the first meeting since 2020 in which more than one Fed official voted against Powell, and the first since 1993 in which more than one board governor dissented.
Companies stockpiled inventory before tariffs took effect and have been reluctant to raise prices given the possible loss of market share from inflation-fatigued consumers. But some economists warn that as businesses with thinner margins deplete their pre-tariff stock and face higher costs due to tariff increases, they’ll increasingly be forced to pass these expenses on to consumers.
“Jay is navigating so many things right now, but one thing that he says that is both true and underappreciated by his critics is that the tariffs are showing up in certain parts of the price index,” said Richard Clarida, a Trump appointee who served as Powell’s second-in-command for more than three years beginning in 2018.
Press Conference
In the press conference, Powell noted core inflation was above the Fed’s target but the composition changed from services to goods due to tariffs.
Powell noted tariff impacts may be one time, or not. The Fed prefers to wait and see.
Powell also noted a deceleration in GDP in the first half of the year, averaging the first to quarters to balance out extreme tariff impacts on imports and exports.
Powell made a very good case for his position. This can still go either way.
Economic Deceleration
I discussed economic deceleration earlier today in my post Real GDP Rebounds to 3 Percent on Strength of Reduced Imports
Advance Estimates
- GDP: 3.0 percent
- Real Final Sales: 6.3 percent
- Real Final Domestic Sales: 1.1 percent
- Real Final Private Domestic Sales: 1.2 percent
In the press conference Powell noted that Real Final Private Domestic Sales at 1.2 percent may be the best measure of the slowdown.
See above link for charts and discussion.
Clarification
Two governors have dissented for the first time since 1993, but there have been three FOMC voters who have dissented as recently as 2016 and 2019. And the last time we had two overall dissented was 2020.
