VIEW FOMC holds steady, but two dissenters wanted cuts

Reuters

4 days ago

July 30 (Reuters) - The Federal Reserve held interest rates steady on Wednesday in a split decision that gave little indication of when borrowing costs might be lowered and drew dissents from two of the U.S. central bank's governors, both appointees of President Donald Trump who agree with him that monetary policy is too tight.
The Federal Open Market Committee voted 9-2 to keep its benchmark overnight interest rate steady in the 4.25%-4.50% range for the fifth consecutive meeting.
The policy statement did note that economic growth "moderated in the first half of the year," possibly bolstering the case to lower rates at a future meeting should that trend continue. But it also said that "uncertainty about the economic outlook remains elevated."
This week's meeting marks the first time in more than 30 years that two members of the Fed's seven-person Washington-based Board of Governors, Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller, voted against a rate decision at the consensus-driven central bank. Waller has been mentioned as a possible nominee to replace Fed Chair Jerome Powell when his term expires next May.
MARKET REACTION:
STOCKS: The S&P 500 (.SPX), opens new tab pared a slight gain to +0.19%
BONDS: The yield on benchmark U.S. 10-year notes ticked a bit lower but was still up 2.4 bp on the day at 4.352%FOREX: The dollar index gained and was last up 0.55%
COMMENTS:
TOM GRAFF, CHIEF INVESTMENT OFFICER, FACET, PHOENIX, MARYLAND:
'As expected, the Fed took no formal action at today's meeting. However, the Fed is clearly in a tricky position. The Fed logically expects some amount of inflation to stem from newly implemented tariffs. Ideally, they would wait until after inflation peaks to consider cutting.
'However, the pressure is building. Even if the White House weren't applying external pressure, the recent softness in the labor market has the Fed worried. Indeed, this is presumably why Christopher Waller and Michelle Bowman dissented this meeting, preferring to cut rates.
'I believe this sets up the Fed to cut at the September meeting, and probably 1-2 times more before year-end. It may be a tricky communications job, cutting rates even though prices will probably be rising. The communications challenge is made worse by Trump's cajoling over rates. It may look like Powell is caving to Trump's demands. But if job growth continues to flag, a recession becomes more and more likely. Powell won't be able to ignore that for too much longer.'
CHRISTOPHER HODGE, CHIEF US ECONOMIST, NATIXIS , NEW YORK:
'The dissents were notable, but well-previewed and do not represent a broader fracturing on the committee. If a third vote went along with Bowman and Waller, that would have been significant. I actually don't think there is much disagreement on the economics between Waller and the rest of the FOMC. All would agree that tariffs won't pass through one for one and that their effect is likely to be transitory. The disagreement is political - Waller assumes certainty on trade policy sooner rather than later and the majority looks at the now six month rolling threats of tariffs and aren't so sure about that'