Minutes from the Federal Reserve’s July monetary policy meeting, released Wednesday, reveal a central bank increasingly concerned about pressures to both sides of its dual mandate of achieving stable consumer prices and maximum sustainable employment.
Members of the Federal Open Market Committee (FOMC) that votes on U.S. monetary policy were ultimately split on whether to cut the benchmark federal funds rate to lower borrowing costs and boost the labor market or hold rates steady to gird against inflation pressures.
Nine FOMC members, including Fed Chair Jerome Powell, voted on July 30 to leave the fed funds rate unchanged at its current 4.25% to 4.5% range. Two central bank governors, Christopher Waller and Michelle Bowman, were in favor of a quarter-point rate cut. Adriana Kugler was absent and did not vote; three days later, she announced her resignation without citing a reason.
The meeting readout doesn’t contain the word “stagflation,” which is the dreaded scenario when rising inflation and high unemployment are accompanied by stagnating economic growth.
But the 18-page document does mention real gross domestic product expanding at a “tepid pace in the first half of the year,” tariffs putting “upward pressure on goods price inflation” and Fed staff expectations that the “labor market would weaken,” with the unemployment rate expected to end the year “above the staff’s estimate of its natural rate.”
The majority of FOMC participants viewed warming inflation to be a greater risk than a slowing jobs market, the minutes show. But Waller and Bowman were more concerned about risks to unemployment, with Bowman in particular voicing concerns about a labor market showing “signs of less dynamism.”
“[Bowman] also expressed her view that taking action to begin moving the policy rate at a gradual pace toward its neutral level would have proactively hedged against a further weakening in the economy and the risk of damage to the labor market,” the minutes state.
In the weeks following the Fed’s July decision, government reports showed concerning trends in both inflation and jobs data.
On Aug. 1, the Bureau of Labor Statistics (BLS) reported just 73,000 nonfarm payroll additions in July — well below economists’ consensus estimate of 110,000 — and an increase in the unemployment rate to 4.2% from 4.1%. More startlingly, May’s and June’s payroll growth figures were revised lower by a combined 258,000 jobs — the largest revision since 1968.
On Aug. 14, the BLS reported a 0.9% month-over-month rise in the seasonally adjusted producer price index (PPI), a measure of wholesale inflation. Those PPI gains represented the fastest acceleration of that metric in three years.
The probability of a Fed rate cut in September, as measured by the CME FedWatch tool, surged to 94% following the July jobs report. Those odds dipped after the PPI data release and now sit around 81% as of Wednesday afternoon.
Central bankers will arrive in Jackson Hole, Wyo., this week for the Federal Reserve’s annual economic policy symposium. Powell will deliver prepared remarks Friday in a keynote speech that will be closely scrutinized for hints into the Fed’s potential monetary policy path next month.