Federal Reserve meeting minutes released Wednesday from the July 29-30 session revealed intensifying divisions within the Federal Open Market Committee regarding monetary policy direction, with internal disagreements on tariff impacts, inflation risks, and employment market conditions highlighting the complex challenges facing policymakers.

The meeting ultimately resulted in a 9-2 vote to maintain interest rates in the 4.25% to 4.5% range, but Governors Bowman and Waller voted in favor of a 25 basis point rate cut, marking the first time since 1993 that two Fed governors have dissented from the majority opinion.

The minutes showed officials were split on the impact of tariffs on inflation. Some committee members believed more time was needed to assess the impact of trade policies on prices, while others emphasized that waiting for clear signals was "neither feasible nor appropriate." Some officials noted that tariffs' price transmission effects might be slower than expected, thereby reducing inflation concerns. However, "hawks" warned of increased pressure in areas such as recent service prices.

Kansas City Fed President Schmid stated in a speech last week that tariffs have limited impact on inflation, partly because the Fed has maintained stable interest rates. He also explicitly opposed calculating so-called "ex-tariff inflation," calling it a "meaningless and unmeasurable concept." In contrast, Bowman argued that tariff-driven price increases represent only a one-time shock and should not become a reason to prevent rate cuts.

Regarding the employment market, some officials pointed out that unemployment remains at low levels with employment near "maximum employment" levels, while others noted slowing wage growth and declining job additions, potentially indicating cooling labor demand.

The minutes noted: "Several participants indicated that they expected economic activity growth to remain subdued in the second half of this year." Meanwhile, some officials observed that slowing real income growth may be constraining household consumer spending.

Notably, these concerns emerged before the July employment report was released, which subsequently revised down May and June nonfarm payroll additions by 258,000 jobs. Analysts believe this data revision may further intensify Fed internal concerns about economic slowdown.

Nick Timiraos, known as the "Fed whisperer," wrote that while the meeting minutes didn't reveal much new content, they reinforced several key points. First, as Powell's post-meeting press conference indicated, the July meeting's overall tone was hawkish (at least relative to market expectations). Second, decision-making is highly dependent on upcoming data releases. Particularly after the August 1 employment report, more officials have become open to September rate cuts.

Timiraos also noted that while the July decision to maintain unchanged rates received broad support, a few officials already align closely with Waller and Bowman's positions, suggesting they might switch to supporting rate cuts at the September 16-17 meeting.

External political pressure has added complexity to these divisions. President Trump has repeatedly called for significant rate cuts and criticized Fed Chair Powell's leadership. Powell has indicated he plans to fulfill his term until May 2026. Notably, both Waller and Bowman were appointed by Trump and are viewed by markets as potential successors.

In post-meeting statements, Waller reiterated his advocacy for gradually cutting rates by up to 150 basis points, arguing that a "wait-and-see strategy is overly cautious" and could leave policy "behind the curve." Powell described Bowman and Waller's views as "compelling and logical" during the press conference, emphasizing that meeting discussions were "very thorough."