The Federal Reserve (Fed) has kept the benchmark interest rate unchanged at 4.25% to 4.50% during the July meeting of the Federal Open Market Committee (FOMC). However, two members of the board expressed dissenting opinions, advocating for a rate cut. This marks the first time since 2020 that more than one dissent has been publicly revealed within the Fed, raising concerns about fractures in the decision-making process of currency policy.
According to the Wall Street Journal (WSJ) on the 30th (local time), commissioners Michelle Bowman and Christopher Waller demanded a reduction of 0.25 percentage points (p). Both are appointees of President Trump, and particularly, Commissioner Bowman has been a leading figure in advocating for stringent monetary tightening. This shift in stance is interpreted as a signal for a possible change in policy direction.
This decision comes as President Trump and the White House strongly demand the Fed to lower interest rates. Recent tariffs imposed on imports have begun to significantly impact consumer prices, leading to increased political pressure to reduce rates in order to mitigate economic slowdown.
Jerome Powell, the chair of the Fed, said during a press conference immediately after the meeting, "An early cut might not adequately control prices, leading to inefficiency that would require a return to tightening." He noted regarding the possibility of a rate cut in September, "I am keeping all options open," but did not provide specific direction.
The Fed is not ruling out the possibility that prices may rise again. While inflation has been kept in check because companies have stockpiled goods in anticipation of tariff increases, there is also a determination that once the inventory is depleted, prices may be passed on to consumers.
This meeting highlighted the weakening consensus among Fed officials regarding policy. Despite rapid deceleration in inflation, they warned that declaring victory and prematurely lowering rates would be risky. Conversely, some individuals expressed concern that the high interest rates are accelerating economic slowdown.
The market reflects a roughly 45% chance of a rate cut in September. The U.S. GDP for the second quarter grew by 3%, surpassing expectations, but private consumption and corporate demand showed a slowdown at 1.2%. These mixed indicators add weight to the Fed's cautious approach.
Before the meeting, President Trump asserted, "The Fed will cut rates in September," but Powell did not officially mention this. However, Waller, who is speculated to be Powell's successor, has recently argued that "The current rates are excessively high compared to the real economy," advocating for a rate cut.
The Fed is closely examining how the 15% tariff and tax cut policies promoted by the Trump administration will impact the overall economy. Richard Clarida, former vice chair of the Fed, emphasized that "Tariffs are affecting various points of the price index," stating that the Fed needs to consider not just the impact on prices but also on growth and employment comprehensively.
Meanwhile, the Trump administration is also exploring economic stimulus measures, such as introducing a consumer rebate system, which could impose additional burdens on the Fed's monetary policy decisions. This system would refund consumers some amount in cash or points if they meet certain conditions when purchasing specific goods or services.
Experts predict that the Fed will face complex judgments between economic indicators and political pressures at the September meeting. In this situation, if there is no certainty that inflation will not resurge, it is anticipated that the Fed will likely maintain a cautious stance for the time being.