Fed Minutes Show a Growing Disagreement Over Rate Cuts

Two members of the Fed’s Board of Governors dissented from the bank’s decision to keep interest rates steady in July. (Karen Bleier / AFP / Getty Images)

Federal Reserve officials are increasingly at odds over the path for monetary policy.

Minutes from the central bank’s July 29-30 meeting, released Wednesday, show a committee wrestling with conflicting economic signals and struggling to reach consensus on everything from tariff impacts to the health of the labor market. They also reveal a growing schism over whether the Fed is falling behind the curve on rate cuts.

Those divisions help explain the first dual dissent from sitting Fed governors in more than three decades: Governors Michelle Bowman and Christopher Waller voted to cut rates by a quarter point, instead of keeping them steady in the 4.25%-4.5% range, as policymakers chose to do. The 9-2 vote marked the first time since 1993 that multiple governors broke with the majority.

In the minutes, officials expressed numerous conflicting opinions on the inflationary impacts of tariffs. Some policymakers said they needed more time to assess how trade policies might affect prices, while others pushed back that waiting for that clarity wouldn’t be “feasible or appropriate.”

Others stressed that tariffs’ effects on inflation would “depend importantly on the stance of monetary policy.”

Policymakers also disagreed about the job market. Some participants observed that “the unemployment rate remained low and that employment was at or near estimates of maximum employment.” Others pointed to easing wage increases and slower job growth that “could suggest a softening in labor demand.”

The minutes showed that a majority of officials “judged the upside risk to inflation as the greater of these two risks, while several participants viewed the two risks as roughly balanced, and a couple of participants considered downside risk to employment the more salient risk.”

The disagreements come amid sustained pressure from President Donald Trump, who has called for substantial rate cuts while criticizing Powell’s leadership. Powell, who Trump appointed chair during his first presidential term, has said he is waiting to see the impact of tariffs on inflation, meanwhile, and plans to complete his term as chair, which expires in May 2026. Both Bowman and Waller are Trump appointees—and are seen as potential successors.

Since the July meeting, both Bowman and Waller have since defended their positions in separate statements. Waller said he favors gradual rate cuts of up to 1.5 percentage points, arguing the “wait and see approach is overly cautious” and risks leaving policy “behind the curve.” Bowman said tariff-driven price increases are a one-off shock that shouldn’t prevent easing.

Powell, in his postmeeting press conference, described their arguments as strong and logical.

“This was quite a good meeting all around the table,” he said. “People thought carefully about this and put their positions out there.”

Markets are pricing in an 83% chance of a September rate cut, down slightly from 85% before the release of the minutes. Powell’s Jackson Hole speech on Friday may offer more clues about the Fed’s direction ahead of its next meeting on Sept. 16-17.

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