The US Federal Reserve's decision last month to keep interest rates unchanged sparked a dissenting opinion from two leading central bankers who wanted to lower rates to prevent further labor market weakness. The outcome of the two-day meeting on Wednesday could indicate whether their concerns are being shared by other policymakers, potentially reinforcing expectations that borrowing cost reductions could begin next month.

Even less than 48 hours after the conclusion of the Federal Open Market Committee (FOMC) meeting on July 29-30, data from the Labor Department appeared to confirm the concerns of Fed Vice Chair Michelle Bowman and Governor Christopher Waller. The data showed that far fewer jobs were created in July than expected, the unemployment rate rose, and the labor force participation rate fell to its lowest level since late 2022.

More troubling, however, were the historic downward revisions to employment estimates in the previous two months. The revision wiped out more than a quarter of a million jobs estimated to have been created in May and June, severely undermining the prevailing narrative of a still-strong labor market. This event so angered President Donald Trump that he fired the head of the Bureau of Labor Statistics.

However, data since then has provided little fuel for those more concerned that Trump's aggressive tariff regime risks rekindling inflation to defend their position against an immediate interest rate cut. The underlying annual consumer inflation rate rose more than expected in July and was accompanied by an unexpectedly large jump in producer prices.

"The minutes of the July Federal Open Market Committee meeting will provide a more nuanced picture of the split on the committee between the majority who voted to keep rates steady and the dovish bloc led by Governor Miki Bowman and Christopher Waller who dissented," wrote analysts at Oxford Economics ahead of the minutes' release, scheduled for 2:00 PM ET (18:00 GMT) on Wednesday. "However, the minutes were more stale than usual because they were prepared before the revised payroll figures, prompting a rapid re-estimate of the probability of a September rate cut."

Ahead of the minutes' release, the CME FedWatch tool estimated an 85% probability of a quarter-point cut in the Fed's policy rate from the current range of 4.25% to 4.50%, where it has held since December.

Another reason the minutes felt stale upon release was that they came just two days before Fed Chairman Jerome Powell's highly anticipated speech at the annual economic symposium near Jackson Hole, Wyoming, hosted by the Federal Reserve Bank of Kansas City. Powell's keynote address on Friday morning, which will be his final address at Jackson Hole as Fed Chairman, with his term expiring in May, could indicate whether Powell has joined those who feel the time has come to take steps to protect the labor market from further weakness, or whether he remains on the more cautious side of inflation given that inflation has drifted away from the central bank's 2% target.

The Fed's lack of interest rate cuts since Trump returned to the White House has irked the Republican president, and he has frequently criticized Powell for not engineering a rate cut. Trump is already in the process of selecting a potential replacement for Powell, and after the abrupt resignation of one of the seven members of the Board of Governors earlier this month, he has an opportunity to immediately exert influence at the Fed. He has nominated Stephen Miran, Chairman of the Council of Economic Advisers, to fill the seat vacated by Adriana Kugler, whose term expires at the end of January. It is unclear whether Miran will receive Senate confirmation before the Fed's September 16-17 meeting. (alg)

Source: Reuters