It has been confirmed that there has been a rift within the Federal Reserve (Fed) regarding future interest rate policy direction. As President Donald Trump has been intensively pressuring the Fed amid a 'tariff war,' the conflict between hawks (those who prefer monetary tightening) concerned about inflation and doves worried about worsening employment is coming to the surface.
The minutes of the Federal Open Market Committee (FOMC) meeting released on the 20th (local time) indicate that during last month's decision to freeze interest rates, the doveish tendencies of Federal Reserve Board Governor Christopher Waller and Vice Chair Michelle Bowman broke the unanimous practice by advocating for a 0.25 percentage point cut in the benchmark rate.
It is unprecedented for more than two Federal Reserve Board members to openly oppose interest rate decisions, marking the first occurrence since 1993. Coincidentally, all of them were appointed by President Trump. In particular, Waller is considered one of the strong candidates to succeed Jerome Powell, the current chair, whose term ends in May next year.
They urged proactive measures based on signs of a slump in the job market. Waller expressed his conviction in a speech immediately after the meeting, stating, 'We should not wait until the job market worsens to lower the policy rate.' Their concerns became a reality just two days after the meeting concluded. The July U.S. employment figures fell significantly short of market expectations, with hundreds of thousands of jobs added in May and June evaporating during the statistical revision process. Infuriated, Trump immediately fired the head of the Labor Statistics Bureau, exacerbating market uncertainty.
However, the minutes also made it clear that the call for a rate cut remains a minority opinion. The minutes noted that 'nearly all participants viewed maintaining the current benchmark interest rate of 4.25% to 4.50% as appropriate.'
Most commissioners identified President Trump's aggressive tariff policy as the biggest risk factor that could again stimulate price increases. They judged, 'While the effect of tariffs is becoming clear on some product prices, the overall economic impact remains to be seen.' In contrast, a minority of commissioners stated that 'waiting for the effect of tariffs to become clear is unrealistic,' calling for immediate action and showing a distinct difference in perspectives.
The Fed's monetary policy is determined by vote within the FOMC, which is an independent body. A total of 12 members, including the chair of the Fed, seven members appointed by the president, the president of the New York Federal Reserve Bank, and four other regional Fed presidents who are appointed in rotation, exercise their voting rights. The chair leads the discussions, but the final decision is made on the principle of majority rule.
President Trump currently cannot directly dismiss Powell, but he is attempting to exert influence by filling vacant board positions. He recently nominated Stephen Mira, the White House economic adviser, as the successor to Adriana Kugler, who recently resigned, and publicly demanded Lisa Cook, a board member appointed by former President Joe Biden, to resign. Cook issued a statement that day, saying, 'I have no intention of stepping down due to being bullied.'
According to the CME FedWatch, the market sees over an 85% likelihood of an interest rate cut in September. However, the atmosphere within the Fed remains cautious. The minutes reported that 'the majority of participants judged the risk of inflation to be greater than that of employment.'
The Fed will hold the Jackson Hole meeting in Wyoming on the 22nd. The Jackson Hole meeting is a symposium where central bankers, policy experts, and scholars from around the world gather to share opinions on monetary policy. Chair Powell will give his final Jackson Hole speech at this event.