Highlights
The minutes of the July 29-30 meeting reflect conditions three weeks ago and before the July employment report or July CPI and PPI data were released. The soft data for non-farm payrolls in July and drastic downward revisions to the prior two months have changed the outlook for monetary policy since the discussions were held. The inflation indexes point to rising consumer costs in the present, and more soon as businesses pass on costs related to higher tariffs. The tension in the dual mandate is more evident in the weeks since the meeting and will probably only increase as the September 16-17 deliberations near.
The reasons for the dissent in the FOMC vote at the end of the meeting appears to have been largely confined to Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman. The minutes said, A couple of participants suggested that tariff effects were masking the underlying trend of inflation and, setting aside the tariff effects, inflation was close to target. Waller and Bowman are not specifically identified, but their dissent appears not to be shared by the rest of the FOMC at the time of the meeting.
Instead, [P]articipants generally expected inflation to increase in the near term. Participants judged that considerable uncertainty remained about the timing, magnitude, and persistence of the effects of this year's increase in tariffs. In terms of timing, many participants noted that it could take some time for the full effects of higher tariffs to be felt in consumer goods and services prices.
A majority of the FOMC remained cautious about the outlook for inflation and some were more concerned about tariff-related inflation becoming more entrenched. The minutes said, A few participants remarked that tariff-related factors, including supply chain disruptions, could lead to stubbornly elevated inflation and that it may be difficult to disentangle tariff-related price increases from changes in underlying trend inflation.
There are signs of lower expectations for growth, although there was no mention of a serious downturn in activity. The minutes said, Participants observed that growth of economic activity slowed in the first half of the year, driven in large part by slower consumption growth and a decline in residential investment. Several participants stated that they expected growth in economic activity to remain low in the second half of this year. Some participants noted that economic activity would nevertheless be supported by financial conditions, including elevated household net worth, and a couple of participants highlighted stable or low credit card delinquencies. A couple of participants remarked that economic activity would be supported by the resolution of policy uncertainty over time.
The discussion on developments in financial markets is three weeks out of date. Expectations at that time were for two 25-basis point cuts in the fed funds target rate range by the end of 2025. Despite somewhat more elevated inflation, the tension between maximum employment and price stability in setting monetary policy may be shifting more toward the former. There was no mention of a recession in the minutes either by the staff or FOMC participants.
Participants generally pointed to risks to both sides of the Committee's dual mandate, emphasizing upside risk to inflation and downside risk to employment. A majority of participants 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. Regarding upside risks to inflation, participants pointed to the uncertain effects of tariffs and the possibility of inflation expectations becoming unanchored. In addition to tariff-induced risks, potential downside risks to employment mentioned by participants included a possible tightening of financial conditions due to a rise in risk premiums, a more substantial deterioration in the housing market, and the risk that the increased use of AI in the workplace may lower employment, the minutes said.
Risks to financial stability were discussed. Several participants noted concerns about elevated asset valuation pressures. Regarding banks, a couple of participants commented that, though regulatory capital levels remained strong, some banks continued to be vulnerable to a rise in longer-term yields and the associated unrealized losses on bank assets. A few participants commented on vulnerabilities in the market for Treasury securities, raising concerns about dealer intermediation capacity, the increasing presence of hedge funds in the market, and the fragility associated with low market depth. A couple of participants discussed foreign exchange swaps, noting that these served as key sources of dollar funding for foreign financial institutions that lend dollars to their customers in the U.S. and abroad, but also that they entailed vulnerabilities due to maturity mismatch and rollover risk, the minutes said.
Benefits and risks involving stablecoins after the passage of the GENIUS Act were noted. The minutes said, Many participants discussed recent and prospective developments related to payment stablecoins and possible implications for the financial system. These participants noted that use of payment stablecoins might grow following the recent passage of the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act). They remarked that payment stablecoins could help improve the efficiency of the payment system. They also observed that such stablecoins could increase the demand for the assets needed to back them, including Treasury securities. In addition, participants who commented raised concerns that stablecoins could have broader implications for the banking and financial systems as well as monetary policy implementation, and thus warranted close attention, including monitoring of the various assets used to back stablecoins.
The minutes said, Participants noted that the Committee was close to finalizing changes to the consensus statement and would do so in the near future. It is likely that Chair Jerome Powell will preview the changes in his speech at the Kansas City Fed's Jackson Hole forum on Friday, August 22 at 10:00 ET.
The reasons for the dissent in the FOMC vote at the end of the meeting appears to have been largely confined to Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman. The minutes said, A couple of participants suggested that tariff effects were masking the underlying trend of inflation and, setting aside the tariff effects, inflation was close to target. Waller and Bowman are not specifically identified, but their dissent appears not to be shared by the rest of the FOMC at the time of the meeting.
Instead, [P]articipants generally expected inflation to increase in the near term. Participants judged that considerable uncertainty remained about the timing, magnitude, and persistence of the effects of this year's increase in tariffs. In terms of timing, many participants noted that it could take some time for the full effects of higher tariffs to be felt in consumer goods and services prices.
A majority of the FOMC remained cautious about the outlook for inflation and some were more concerned about tariff-related inflation becoming more entrenched. The minutes said, A few participants remarked that tariff-related factors, including supply chain disruptions, could lead to stubbornly elevated inflation and that it may be difficult to disentangle tariff-related price increases from changes in underlying trend inflation.
There are signs of lower expectations for growth, although there was no mention of a serious downturn in activity. The minutes said, Participants observed that growth of economic activity slowed in the first half of the year, driven in large part by slower consumption growth and a decline in residential investment. Several participants stated that they expected growth in economic activity to remain low in the second half of this year. Some participants noted that economic activity would nevertheless be supported by financial conditions, including elevated household net worth, and a couple of participants highlighted stable or low credit card delinquencies. A couple of participants remarked that economic activity would be supported by the resolution of policy uncertainty over time.
The discussion on developments in financial markets is three weeks out of date. Expectations at that time were for two 25-basis point cuts in the fed funds target rate range by the end of 2025. Despite somewhat more elevated inflation, the tension between maximum employment and price stability in setting monetary policy may be shifting more toward the former. There was no mention of a recession in the minutes either by the staff or FOMC participants.
Participants generally pointed to risks to both sides of the Committee's dual mandate, emphasizing upside risk to inflation and downside risk to employment. A majority of participants 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. Regarding upside risks to inflation, participants pointed to the uncertain effects of tariffs and the possibility of inflation expectations becoming unanchored. In addition to tariff-induced risks, potential downside risks to employment mentioned by participants included a possible tightening of financial conditions due to a rise in risk premiums, a more substantial deterioration in the housing market, and the risk that the increased use of AI in the workplace may lower employment, the minutes said.
Risks to financial stability were discussed. Several participants noted concerns about elevated asset valuation pressures. Regarding banks, a couple of participants commented that, though regulatory capital levels remained strong, some banks continued to be vulnerable to a rise in longer-term yields and the associated unrealized losses on bank assets. A few participants commented on vulnerabilities in the market for Treasury securities, raising concerns about dealer intermediation capacity, the increasing presence of hedge funds in the market, and the fragility associated with low market depth. A couple of participants discussed foreign exchange swaps, noting that these served as key sources of dollar funding for foreign financial institutions that lend dollars to their customers in the U.S. and abroad, but also that they entailed vulnerabilities due to maturity mismatch and rollover risk, the minutes said.
Benefits and risks involving stablecoins after the passage of the GENIUS Act were noted. The minutes said, Many participants discussed recent and prospective developments related to payment stablecoins and possible implications for the financial system. These participants noted that use of payment stablecoins might grow following the recent passage of the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act). They remarked that payment stablecoins could help improve the efficiency of the payment system. They also observed that such stablecoins could increase the demand for the assets needed to back them, including Treasury securities. In addition, participants who commented raised concerns that stablecoins could have broader implications for the banking and financial systems as well as monetary policy implementation, and thus warranted close attention, including monitoring of the various assets used to back stablecoins.
The minutes said, Participants noted that the Committee was close to finalizing changes to the consensus statement and would do so in the near future. It is likely that Chair Jerome Powell will preview the changes in his speech at the Kansas City Fed's Jackson Hole forum on Friday, August 22 at 10:00 ET.
Definition
Detailing the issues of debate and consensus among policymakers, the Federal Open Market Committee issues minutes of its latest meeting three weeks after the meeting.
Description
The FOMC has changed dramatically in the transparency of its operations. It now discloses policy changes at the end of each meeting. Historically, the Fed used to keep investors guessing about policy changes and Fed officials did not appear on the speaking circuit as frequently as they do now.
The Fed's minutes are a market mover as investors and analysts parse each word looking for clues to policy. The minutes include the complete economic analysis compiled by Fed officials and opinions at odds with the consensus.
Investors who want a more detailed description of Fed opinions will generally read the minutes closely. Fed officials also make numerous speeches, which give their views to the public at large.
The Fed's minutes are a market mover as investors and analysts parse each word looking for clues to policy. The minutes include the complete economic analysis compiled by Fed officials and opinions at odds with the consensus.
Investors who want a more detailed description of Fed opinions will generally read the minutes closely. Fed officials also make numerous speeches, which give their views to the public at large.
