Fed Leaves Interest Rates Unchanged, 2 Officials Dissent

For the first time in three decades, two central bank officials dissented, preferring to cut interest rates.

The Federal Reserve left interest rates unchanged for the fifth consecutive policy meeting.

Officials chose to keep the benchmark federal funds rate—a key policy rate that influences business, consumer, and government borrowing costs—in a range of 4.25 to 4.5 percent.

For the first time since 1993, two Federal Reserve officials dissented from the majority decision, advocating for a rate cut. Fed Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman—both Trump appointees—broke with the consensus.

Bowman and Waller preferred to lower the target range by a quarter point at the July FOMC meeting.

The Fed said that recent indicators suggest economic activity moderated in the first half of the year.

“The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated,” the FOMC said in a statement.

Financial markets had overwhelmingly expected the Fed to hold steady, despite persistent pushback from President Donald Trump and senior administration officials.

“We at the White House 100 percent respect their independence, but we also like to respect their analysis,” National Economic Council Director Kevin Hassett said in a July 30 CNBC interview. “We expect that the Fed will catch up to the data soon. That’s going to be a really big, positive story.”

The next two-day FOMC meeting is scheduled for September 16–17.

A Tale of Two Feds

For months, monetary authorities have insisted that they can afford to wait before taking policy action. As the current administration implements fundamental changes to trade policy, the Federal Reserve is awaiting further clarity to determine whether tariff efforts will result in a one-time price adjustment or persistent inflation pressures.

Waller, speaking in an interview with Bloomberg Television on July 18, stated that basic economic theory suggests trade levies do not generate serious, persistent inflation threats throughout the broader economy.

“You would have to cook up some other amplification mechanisms,” Waller said.

“And what’s what people talk about: wages will start going up, and everything will get out of control.

“You’re not seeing that at all.”

Waller has been an advocate of lowering interest rates, pointing to weakness in the labor market as justification for cutting now rather than waiting.

Bowman has also expressed support for reducing rates.

“As we think about the path forward, it is time to consider adjusting the policy rate,” Bowman said during a June 23 speech in Prague, Czech Republic.

Like Waller, Bowman also said that downside risks to the labor market could begin forming.

Headline employment data indicate a healthy job market, with the unemployment rate hovering slightly above 4 percent. However, according to Waller, a closer examination of the data reveals fading momentum.

“Once we account for expected data revisions, private-sector payroll growth is near stall speed, and other data suggest that the downside risks to the labor market have increased,” he said at a July 17 New York University event.

Appearing before the New York Association for Business Economics, New York Federal Reserve President John Williams said that he is beginning to see higher inflation driven by tariffs. In the coming months, he said, the effects should begin to be realized.

“Overall, I expect tariffs to boost inflation by about 1 percentage point over the second half of this year and the first part of next year,” Williams said in prepared remarks.

The Bureau of Economic Analysis will release the central bank’s preferred inflation measure—the personal consumption expenditures (PCE) price index—on July 31.

According to the Cleveland Fed’s Inflation Nowcasting estimate, inflation in the headline PCE price index is expected to come in at 2.5 percent for June from 2.3 percent in the previous month. Core PCE inflation, which excludes volatile food and energy prices, is expected to remain steady at 2.7 percent.

While investors are still expecting a September rate cut, the odds have diminished this month. According to the CME FedWatch Tool, the chances of a quarter-point reduction stand at 60 percent, down from 75 percent on June 30.

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A Tale of Two Feds

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