In the last meeting at the end of July, the Federal Reserve decided for the umpteenth time to keep the federal rate on the Fed Funds in the interval of 4.25-4.50%, believing that the risks related to the duties are still all to be evaluated and that the inflation was still too high to proceed with a cut. For the first time, however, the FOMC broke out and two members voted against the decision to keep the interest rates still, preferring to reduce them by 25 basis points. An option that took into account the uncertainty about the impact of the duties on inflation and growth and the conditions of the labor market worsening. This is what emerged from the minutes of the last monetary policy meeting of 30 July.
The view on economy and inflation
In monetary policy discussions, the members of the FOMC have agreed that, although the oscillations of net exports had influenced the data, the recent indicators suggested that economic growth had weakened (moderate) in the first half of the year, that the unemployment rate had remained at a low level and the conditions of the solid labor market. The members of the board also judged that the inflation had remained rather high and that the uncertainty about the economic perspectives was high.
Two votes against rates stability: that’s why
As known, almost all the members of the FOMC have agreed to keep the objective interval for the rate on federal funds between 4.25% and 4.50%, while two members – Michelle W. Bowman and Christopher J. Waller – voted against this decision, preferring to lower the objective interval of 25 basic points.
The two “dissident” members in fact considered that, excluding the tariff effects, inflation was approaching the 2% objective set as target by the FOMC and that it was unlikely that higher duties had persistent inflation effects. In addition, they evaluated that the risk of the reduction for employment had increased significantly with the slowdown of economic growth and consumer expenditure and that some arrival data indicated a weakening of the conditions of the labor market, including low levels of increasing wages in the private sector and the concentration of these increases in a restricted group of sectors less influenced by the economic cycle.
Confirmed approach to the data
The FOMC in the end confirmed that, in evaluating the extent and timing of further rates adjustments, it would have carefully evaluated the arrival data, the evolution of the prospects and the risk balance. All members agreed that the Statement should have reiterated the “strong commitment to support maximum employment and report the inflation to the goal of 2%”.
The members of the FOMC therefore agreed that, in evaluating the appropriate orientation of monetary policy, they would continue to monitor the implications of the information coming for the economic perspectives and would have been ready to adapt the orientation of monetary policy, if risks emerged that could hinder the achievement of the objectives.
Finally, the FOMC agreed that the assessments would take into account a wide range of information, including data on the conditions of the labor market, on inflationary pressures and on inflation expectations, as well as on financial and international developments.
