“Uncertainty about the economy outlook” is back in full force in today’s statement, after it had “diminished” at the last meeting. QT continues.
By Wolf Richter for WOLF STREET.
The FOMC voted today to keep the Fed’s policy rates unchanged for the fifth meeting in a row, after cutting its policy rates by 100 basis points in 2024, as has been widely telegraphed by a slew of FOMC members in their speeches. But so have been the rare dissents by two governors.
Two of the seven governors of the Federal Reserve Board – Michelle Bowman and Christopher Waller – dissented and wanted a rate cut. They have been clamoring for weeks for rate cuts.
The last time two governors dissented had been at the meeting in December 1993 under Greenspan when governors Wayne Angell and Lawrence Lindsey dissented and wanted tighter policy.
Bowman had already dissented at the September meeting, but ironically in the other direction, when the Fed cut 50 basis points, while she preferred to cut by only 25 basis points.
Waller, who has been publicly angling to be appointed chairman of the Federal Reserve Board of Governors when Powell’s term ends next year, is now a low-interest-rate kind of guy, in line with Trump’s thinking.
None of the five presidents of the regional Federal Reserve Banks dissented. In total, there were 11 voting members on the FOMC today, as governor Adriana Kugler was absent and didn’t vote.
To find two governors dissenting at the same time, we have to go back over 30 years. There had been a number of dual and even triple dissents by presidents of the regional Federal Reserve Banks. The most recent dissent by three presidents occurred at the meeting in September 2019, but in opposite directions. When the FOMC majority voted to cut rates by 25 basis points, Ester George (Kansas City Fed) and Eric Rosengren (Boston Fed) wanted no cut, while James Bullard (St. Louis Fed) wanted a 50-basis-point cut.
“Uncertainty about the economy outlook” was back in full force in today’s statement, after it had “diminished” at the last meeting.
The Fed’s wait-and-see mode continues to be powered by this uncertainty about inflation that has accelerated, driven by services inflation, and that the Fed worries could accelerate further with additional fuel from the tariffs; and the labor market that has remained solid but could weaken.
The Fed kept its five policy rates at:
- Target range for the federal funds rate: 4.25-4.50%.
- Interest it pays the banks on reserves: 4.40%.
- Interest it pays on overnight Reverse Repos (ON RRPs): 4.25%
- Interest it charges on overnight Repos: 4.50%.
- Interest it charges banks to borrow at the “Discount Window”: 4.50%.
What changed in the FOMC’s statement:
New: “Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year.”
Old: “Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace.”
New: “Uncertainty about the economic outlook [took out “diminished but”] remains elevated.”
Old: “Uncertainty about the economic outlook has diminished but remains elevated.”
QT continues at the slower pace announced in March, the FOMC said in the statement. The Fed has shed $2.31 trillion in assets since July 2022. At the current pace, Treasury run-off at a rate of $5 billion a month, but MBS run off without preset limit. Over the past few months, the MBS run-off has been between $15 billion and $18 billion a month.
No-dot-plot meeting. This meeting was one of the four a year when the FOMC does not release a “Summary of Economic Projections” (SEP), which includes the “dot plot” that indicates how each FOMC member that day sees the development of future policy rates, inflation, GDP growth, and unemployment.
It’s this combination of a relatively solid labor market and increased inflation worries this year that has caused the Fed to pivot back to wait-and-see.
The whole statement:
Although swings in net exports continue to affect the data, recent indicators suggest that growth of 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 Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Alberto G. Musalem; and Jeffrey R. Schmid. Voting against this action were Michelle W. Bowman and Christopher J. Waller, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting. Absent and not voting was Adriana D. Kugler.
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It will be interesting to see what our King will say about this….getting my popcorns ready..
I suspect he won’t be happy, but at the same time he should have expected it.
we call him too late, if he was to take the train it would leave without him b/c hes always too late.
I hope CryptoBoy has a meltdown.
Whatever the FOMC decides, it is none of Donnie’s business at all.
I generally like Trump’s policies, but he is a complete idiot when he talks about interest rates. I guess his underlings are too afraid to tell him.
Follow the money. Who benefits from low interest rates (whether or not these rates cause inflation). Big builders; office tower mortgage holders; tech VC’s; hedge funds. Match the above list against Trump’s big donors. Voila.
PS – and Trump desperately needs low rates to help reduce the cost of Government debt. It’s not that Trump is an idiot, it’s more like he can’t resist the cookie jar – and like all other politicians before him, is a firm believer that he can punt the debt bomb further down the road…
Yes this is a case where his particular interests are driving him toward very bad policy.
thurd
Agreed.
He treats the Fed like a bank with which he is doing real estate business.
DJT hates interest rates, as do all real estate people (was for negative rates)
DJT was put out of business by the Fed in 1981
Stocks all time highs, Gold all time highs, etc etc….and the Fed is supposed to cut?
Well, I think “if” the economy slows/goes off the rails he’s got it set up so Powell is the fall guy.
Trump plays both sides so he always comes up on top.
Economy strong, see its me! Economy weak, it’s him for not lowering rates!
Epstein’s best mate, he also never knew the guy. But he did still his teenage spa workers, that was the last straw.
The two lapdogs dissented, I’m shocked.
Japan’s economic reality here we come.
These goons are so out of touch with all of us , what a bunch of idiots. The economy is FINE!
Nvidia is valued at $120 Million per employee. Quickly, cut the rates!!
The push for lower rates is aimed to drive us out of cash and into speculative markets. Walking the plank at (inflation) sword-point, out onto the risk curve! It is to goose the headline numbers in the economy, and lower real federal debt costs. The federal government will borrow shorter-term at lowered rates. It’s a gimmick, and the bond market won’t be fooled.
Well the good news is, Microsoft, Facebook, and Nvidia will cross $10 Trillion mark tomorrow morning. None make anything tangible. Nvidia resells graphics cards from Taiwan. Kids call it AI these days. In concept it means (with enough “compute”) a million monkeys with typewriters can produce War and Peace. I am not quite sure what Facebook does.
The dissents are likely auditions for when Powell cycles out, hedging for if T tests the courts.
I am surprised that Wall Street is optimistically expecting a rate cut of 25 or 50 basis in 2025. Unless the bottom falls out, I would expect companies will test more aggressively passing the costs through to the consumer as it seems like tariffs will settle around 15% ex-China & it’s friends. That should give the hawks a better narrative in the near term for delay.
Interesting times continue on.
“The dissents are likely auditions for when Powell cycles out, hedging for if T tests the courts.”
Right, because political aspirations supersede the good of the country.
There are always a few for whom that is true, sadly.
Retail is bifurcated with the low end struggling.
Mass-market companies in competitive sectors don’t have pricing power, or they’d have raised prices already.
Luxury goods companies might be able to pass along tariffs, but that won’t move the needle on inflation.
Further softening of the labor market will also hold inflation down.
Of note, Ford would have had a profit last quarter except for the tariffs they paid.
Not an isolated condition.
Prices will rise, even a 15% tariff half eaten by the producer will rise prices 7.5%.
Thanks WR for this report.
Nothing unexpected here.
Uncertainty over economic outlook, but also perhaps the data itself? I read this AM that the administration has cut nearly 15% of the staff at the BLS, discontinued collection of over 350 Producer Price Index subseries, gutted local CPI survey coverage, and disbanded FESAC (the Federal Economic Statistics Advisory Committee). Powell’s job will be harder with shit numbers. Maybe Fed has other sources in case politicians play games like this? Maybe it won’t matter once Scott takes over.
Brendan,
Slow down a minute. Store visits are only a part of the inflation input data. BLS uses data from multiple sources. The staff that go to stores are a form of double-checking. And only in some smaller cities were those visits eliminated.
Much of the data is from transaction prices, not sticker prices, that the BLS buys or gets from various private-sector industry sources. For example, many years ago, it started buying cash-register data from Nielsen. A few years ago, it started buying vehicle sales data from J.D. Power. It gets some corporate data directly from some major companies. These are NOT sticker prices, but prices actually paid by real buyers, and this data comes with product details, which is important. In addition, it gets data from web scraping and other methods.
Rent data is from actual rents paid by actual tenants, based on the Census survey of a panel of tens of thousands of home addresses over time, regardless of who lives there at the time. This is not based on staff knocking on doors and asking people.
There have been years of work to shift more data collection to these alternative methods, along with discussions to what extent these store visits are still necessary, given the actual transaction data now available to the BLS.
A few years ago, when the BLS officially switched to J.D. Power’s vehicle transaction data, I covered this because it was right up my alley. This was before the price spike during the pandemic. And that transaction data completely nailed the price spike, whereas the staff going to dealers, and surveys sent to dealers, under the old system would have likely not done as well. But some staff probably became unnecessary and were likely shifted to other jobs.
A lot of this stuff is getting modernized, and that’s a good thing. The BLS has done a good job spreading out its data sources and incorporating private-sector and corporate data, rather than just sending staff out to look at sticker prices, which is how it used to be done eons ago.
I’ve used FRED data for my job for 20 years (they get used in price formulas for long-term [20+ year duration] off-take contracts via product-supply-agreements).
I want to SCREAM at people on both sides of the aisle when they get up in arms about preliminary data and revisions. It has been normal course of business for my entire time using these indices.
Phew. That’s helpful. Thank you Wolf.
Wolf, I lately walk to Chinatown to shop. Fruits and veggies are 1/5th the prices in Safeway. Fruits in season 1/10th the price sometimes after 4pm if you look around. Bought 3 pounds of rainier cherries for $1. Not $1/lb; 3lb for $1. 4 large red bell peppers for $1. In Safeway $2 a piece. Same with peaches, greens, etc. Hauled blue Ikea bag full for $20. But you probably know this already.
Where is this market
yes, even more conveniently, we now buy lots of this stuff online from an Asian-food specialized online only retailer in the Bay Area, biggest one in the country, for a fraction of the cost, good produce too, and fresh, much of it from the Central Valley. Also frozen fish that you cannot even get at the Safeway or Costco. Last night, we had pompano, one fish feeds two of us nicely, absolutely delicious. Less than $5 per fish, or $2.50 per person, gourmet protein. I consider Safeway a gangster operation.
And the BLS picks up all this pricing data via its cash-register data that it buys from Nielsen, which includes online retail, China Town retailers, etc.
Yes, nothing to see here kids. The dismantling of government data sources of all kinds will be to your benefit in the long run. Now run along.
“Bowman had already dissented at the September meeting, but ironically in the other direction, when the Fed cut 50 basis points, while she preferred to cut by only 25 basis points.”
Gee I wonder what changed from September until today. Glad we have 11 other members keeping to their pledge of independence.
so shes the only one that has been right?
Were there any hints in any of this about what it might take to get the Fed to re-accelerate QT? A higher inflation print or three? Or something else?
Howdy Folks. Proves again everything is political and all about the bucks.
Some of US are really enjoying this, this time…….
And in the bullshit world of the media, politics is a three-ring circus, ensuring that no politician gets treated objectively. The big donors’ campaign boosts, their favored status with the politicians, and their immortality on the scene make elite influence an ongoing problem… The American people, however, have given a mandate to Donald Trump, whose political experience has grown while encountering less resistance from the mainstream media itself. Trump, a creature of New York real estate, continues to see himself as a dealmaker first and foremost, with his sticky fingers prying bricks from the world order in order to make a new edifice. Only at the end of his second term will the world return to normalcy.
Waller and Bowman want Powell’s chair next May (or sooner), so they choose to kiss Trump’s bvtt.
Jerome Powell will remain on the Federal Reserve Board of Governors even after his term as Chairman expires in May 2026.
Could it be they don’t understand that being his “boy” only gets you to take the blame and public whipping when things go wrong?
The Federal Reserve, just as expected, did the right thing today.
Even talking about rate cuts right now is nuts. We just had a full month’s worth of extremely solid economic data. Robust Q2 GDP growth (+3%), unemployment rate edging down to 4.1% in June (we’ll find out about July on Friday), inflation stuck around that 2.7% core PCE level (TTM) since May 2024. Initial jobless claims edging down every week. Stock market going crazy; NASDAQ futures just hit another record after Big Tech earnings.
20 years ago, economists would have been shocked by talk about rate cuts in this kind of economy.
Austan D. Goolsbee; would have voted the other way if his buddy Biden was President. The Fed has become completely politicized.
Every institution that goes through the President and/or Congress/the Senate has become fully politicized. This is unfortunately the reality of modern politics.
Well, at least he couldn’t have picked up any $BidenCoin.
What do you believe the Fed target rate would be today if it were no longer politicized?
6%+
Rates weren’t restrictive at 5.5%. They’re certainly not restrictive right now.
What concerns me even more than political influence is Wall Street influence. Almost every FOMC committee member uses it as a stepping stone to a multimillion payday (Bernanke PIMCO, Clarida PIMCO, Kaplan GS, etc.) Every press conference question is cheerleading for lower rates etc.
It would be exactly where it is today because the Fed isn’t political or forward looking…. Wanna know what the Fed will do… Just watch the bond market as they follow along aimlessly.
The shorter-term bond market follows what the Fed communications say that the Fed will do in a million ways, including through policy statements, press conferences, the dot plot, Fed speak, minutes, etc. That’s what the bond market pays extreme attention to.
There is nothing ‘political’ at all as to the decisions of the FOMC.
Ya right…
Like lapdogs Waller and Bowmen would have dissented if Biden was President. Bowman last Sept dissented for 50BP cut. Now she want us the see through inflation.
There are still many doves on committee including Goolsbee. But they all can inflation is still above target and economy and labor market is doing fine. So they have more backbone than your MAGA Governors.
It’s apparent the giddy stock market is beginning to price in the prospect of (artificially) lower interest rates next year. Hence its parabolic surge since the April lows, mainly on multiple expansion. Whether or not rate cuts materialize in Q4, Powell will be gone in May 2026. Trump wants rates lowered by 3 percentage points (he’s stated this specific amount in multiple interviews) and has made that a purity test in selecting his new chair. And there are at least 2 other willing sycophants (see today’s dissent) plus at least 1 more (Kugler’s term expires in January.)
Strangely, the bond market doesn’t seem concerned. The passage of OBBBA & corresponding surge in Treasury issuance has barely made a dent in long-term treasury yields, which are about 0.5% lower than they were in January.
The FDIC should lower its deposit guarantee to 100,000.
It wouldn’t matter much because all big depositors will get bailed out, as we have seen with SVB and First Republic. So that’s an implicit guarantee and it will stand until a major bank collapses and the big depositors are getting haircuts.
$100,000+ CDs account for only 13% of total deposits, and some of that is above the current $250,000 limit and uninsured.
” all big depositors will get bailed out”
That edict by Yellen was remarkable. 250K ceiling just cast aside. It will likely be a very big deal down the road. Reminds me of G Sax changing its banking status in the middle of the 2008 crisis.
Rules are imagery.
We’re about at $20 trillion with just Mag7 today with total, cumulative national GDP approximately $30.507 trillion.
The Fed seems irrelevant. AI dwarfs all economic activity and investors are speculating with bigger bets every day — I’m suddenly thinking that if Powell is fired, nobody will care — and then, whoever fills his shoes won’t matter a bit.
Maybe this is poetic justice — the Fed kept pumping bubbles , and now, the AI bubble has taken on a life of its own, dominating the future of the global economy. Really cool, thanks FOMC!
LLM’s are the most cancerous
C!rcle Jerk ever perpetrated by
Silicon Valley and Wall St
I know it’s not a haiku, but I read it as a haiku. Glass half empty poetry.
What’s really worrying to me is that Microsoft, Google, Nvidia and Facebook can have 20-30% revenue and profit increases, year after year, while the rest of the economy only does so-so.
They make the gilded age companies look like child’s play.
Nominal GDP growth is about 5-6%. Profit growth above that level comes out of some other player’s pocket.
The antitrust folks should have pounced as soon as we starting calling them platform companies.
Yes, that’s my theory as to why societal trust and cohesion seems to have broken down. During America’s glory days, everyone got richer, as the pie grew. Now, it seems that the way to get rich is to take more of the barely growing pie for yourself. As you note, by definition, doing that means someone else is getting less.
Microsoft is essentially a monopoly that does a lot of work with the Federal Govt (Pentagon)
Nothing to see here, move along.
They’re also supported by the federal deficit spending. The government spends trillions that ends up spread throughout the economy, and those trillions get spent on Azure services and Google and Meta advertising.
If anyone is thinking of long term or even medium term treasuries, jump in before the next meeting.
Jerome addressing the council of 12 policy voting dwarfs:
“If you midgets vote to raise rates, you’ll crash the entire system. If you vote to lower rates, our beloved dollar will be seen for the toilet paper that it truly is. Any votes either way will merit a one-way ticket to Siberia! Any questions?”
‘No decisions about September’
Markets had overwhelmingly expected no action on rates, but stocks headed lower after Fed Chair Jerome Powell said at a news conference that the committee hadn’t yet determined whether it would cut rates at its September meeting.
“We have made no decisions about September,” he said. “We don’t do that in advance. We’ll be taking that information into consideration and all the other information we get as we make our decision.”
We’ll need higher rates with all these tariffs about to kick in.
Powell handled the Presser like a pro with calm tone and mood. Gave sufficient respect to opposing views/dissents yet clearly told us what majority of the committee is thinking. No cut as there is no need. Clearly stated no preset course for cuts.
1) FED is NOT thinking about Debt servicing cost of our government.
2) Growth not so much important compared to Labor Market and 2% inflation goal. Goal is 2%.
3) Started talking about really how much restrictive monetary policy is? His tone and mood was like not so much as they were thinking 3-6 months before.
4) Clarified Waller’s concern about job growth slowed down. Powell said so have the number of available workers as immigration has come down too. Unemployment number is important not just absolute numbers.
5) Talked about Services inflation and goods inflation. Clearly said we cant just look at one alone. Totality of data,
6) Stayed away from committing to Sept cut. That hurt many Pundits.
7) In one question he even said we are already seeing through the inflation by not raising rates. Man! That must have burnt some people.
8) As usual Stayed away from political comments/statements. Politico woman always uses her question(s) to ask same nonsense meeting after meeting. Last question of presser also same BS. That journalist asked same question last time.
We dont have to agree on what FED doing. But I guess Powell deserves some credit for handling the Central bank in this such politicized environment. No wonder Buffet calls him “Hero”.
What the Fed needs to do is to find a new supplier of chicken entrails.