Fed’s Dissenters Were Worried About Jobs. Now We All Are.

Michelle Bowman and Christopher Waller. (Bloomberg (2))

The Federal Reserve released dissenting statements from two officials early Friday morning, revealing internal disagreements over the health of the labor market and the path of interest rates.

Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman both voted to cut rates by a quarter percentage point at the Fed’s July meeting. It was the first time in more than 30 years that two governors dissented from a monetary-policy decision.

Their statements, which signaled worry about the job market shortly before the release of disappointing employment data for July, suggest a growing split within the central bank over whether inflation or employment should now be the primary concern.

Both Waller and Bowman dismissed the inflationary impact of President Donald Trump’s tariff policy as a temporary, one-off price increase and argued that underlying inflation is now close to the Fed’s 2% target. They also warned that the labor market is weakening beneath the surface.

New jobs data on Friday offered support for their position. The U.S. economy added just 73,000 jobs in July, well below expectations. May and June saw dramatic downward revisions as well. The unemployment rate edged up to 4.2%.

Waller pointed to those revisions, which were only expected at the time he wrote, saying private payroll growth is near stall speed and cautioned that labor markets tend to deteriorate quickly once momentum slows. Bowman noted that employment gains have narrowed to a handful of less cyclical industries and that the employment-to-population ratio has fallen this year.

“The labor market has become less dynamic and shows increasing signs of fragility,” Bowman wrote in her statement. Waller added that holding rates where they are risks falling behind the curve if the job market worsens before the effects of tariffs are fully understood.

The dissenting statements stand in contrast to Fed Chair Jerome Powell’s remarks following the July rate decision. At his press conference, Powell played down concerns about the labor market and suggested the most important metric to watch was the unemployment rate, which remains historically low at 4.2%.

That disconnect underscores a more fundamental divide over how the Fed is reading new data. While Powell remained focused on traditional headline indicators, Waller and Bowman are sounding the alarm over what they see as growing vulnerabilities. Both called for a gradual move toward a more neutral policy stance to hedge against an economic slowdown and avoid the need to take more drastic action later.

Both Waller and Bowman were appointed to the Fed’s Board of Governors by President Donald Trump. On Friday morning, Trump took to social media to urge the board to “assume control of the Fed” if rate cuts aren’t forthcoming.

The July meeting ended with rates unchanged between 4.25%-4.50%, but the internal disagreement adds uncertainty to the outlook. Markets are betting that rate cuts could begin as soon as September. Whether that happens may depend on which reading of the labor market proves more accurate, and how long the Fed can hold off on action as internal pressure mounts.

Write to Nicole Goodkind at nicole.goodkind@barrons.com