Fed officials have long been unusually divided on the issue of interest rate reductions. The minutes of the July meeting, released today, reveal how deep the department is.
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Interest rates remained stable at 4.25%-4.5% at the Federal Open Market Committee (FOMC) meeting held on July 29th-30th. However, the decision came with opposition from board members for the first time in over 30 years. Michelle Bowman and Christopher Waller had previously announced their support for a quarter-point cut.
The meeting statements differed in tone, but most were cautious, especially regarding the impact of the new tariffs on inflation. Conversely, many potential candidates replacing Jerome Powell have openly advocated for interest rate cuts, further increasing interest in the minutes.
Market expert Ed Yaldeni commented, “It may reveal how long the pigeons are, how strict the Hawks are.” Data released since then complicates the photos. Job data in July pointed to a slower labor market, but consumer prices fell on the inflation front and producer costs rose.
Meanwhile, pressure from the White House to cut interest rates has increased. Treasury Secretary Scott Bescent argued that the rise in the producer price index was primarily due to a surge in the stock market. Komal Sri-Kumar, president of Sri-Kumar Global Strategies, warned that “the risks of economic policies are increasingly affected by political pressure.”
Fed officials have always emphasized avoiding political debate and making decisions based solely on employment and price stability. However, the ongoing search for the new chair made this independence even more difficult. “Fed’s independence is less based on legal guarantees than a common understanding that monetary policy should be freed from partisan influence,” Srikumar said. “This norm is currently under great pressure.”
*This is not investment advice.
