Fed officials Bowman, Waller link their policy dissents to job market concerns
"With economic growth slowing this year and signs of a less dynamic labor market, I saw it as appropriate to begin gradually moving our moderately restrictive policy stance toward a neutral setting," Fed Vice Chair for Supervision Michelle Bowman said in a statement. "In my view, this action would have proactively hedged against a further weakening in the economy and the risk of damage to the labor market," she said.
Fed Governor Christopher Waller said in a separate statement that "with underlying inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate." Waller said the job market is nearing stall speed and the central bank's policy rate should be closer to the neutral level where economic activity is neither stimulated nor restrained.
Waller said of the Fed's broader approach to monetary policy right now that "I believe that the wait-and-see approach is overly cautious, and, in my opinion, does not properly balance the risks to the outlook and could lead to policy falling behind the curve."
Hiring data appeared to justify some of that anxiety. The Labor Department reported that nonfarm payrolls rose by a smaller-than-expected 73,000 jobs last month, with big downward revisions to the job growth numbers in May and June. The unemployment rate edged up one-tenth of a percentage point to 4.2% in July.
Meanwhile, the Trump administration ramped up its trade war by imposing a new range of steep import tax increases on many U.S. trading partners. The latest tariff-related announcement helped send global stock markets lower. Traders and investors also were pricing in Fed rate cuts, with the first projected to come next month.
"We maintain our view that the Fed will ease monetary policy starting in September and see a total of 75 basis points of rates cuts by year-end due to a weakening in employment and the overall economy," said Kathy Bostjancic, chief economist at Nationwide. "The inflation impact from tariffs in our view will be a one-time adjustment that over time will fade."
Bowman and Waller weighed in on Friday after casting dissenting votes against the Federal Open Market Committee's decision on Wednesday to hold its benchmark interest rate in the 4.25%-4.50% range. The dissents marked the first time since late 1993 that two Fed governors had opposed the central bank's consensus view.
Comments made by Bowman and Waller going into the meeting had led many observers to expect their dissents.
Waller has been most explicit in arguing for lower rates, saying the risks are rising for the job market while tariff-related inflation increases are likely to be a one-time shift the Fed could ignore. Bowman also expressed skepticism that tariffs would cause sustained inflation problems.
Cleveland Fed President Beth Hammack, however, was not ready to say that the job market was coming off the rails.
While acknowledging the headline July payrolls number was "disappointing," she told Bloomberg Television, "I feel confident with the decision that we made earlier this week," noting that "when I step back and look at where we are, I see a labor market that is largely in balance."
She said she'll be keeping a close eye on jobs data going forward while flagging the fact that inflation is still above the Fed's 2% target. She added that the central bank will have a tricky time balancing the two sides of job and inflation mandates going forward.
Hammack declined to say what she thinks the Fed should do at its September 16-17 policy meeting.
The Bowman and Waller dissents also garnered interest because of the broader political currents buffeting the Fed. President Donald Trump has been pushing aggressively for rate cuts, excoriating Fed Chair Jerome Powell for failing to heed the White House's demands for lower borrowing costs.
Trump weighed in again on Friday, saying in post on his Truth Social media platform that Powell is "a stubborn MORON" and that the central bank "must substantially lower interest rates," and if Powell doesn't do it, other central bank officials should take control and force the matter.
Waller, who noted last month that his view was not "political," is widely considered to be in the running to succeed Powell when his term expires next May.
Bowman, who was recently elevated to the Fed's bank overseer role by Trump, had previously been on the more hawkish end of the monetary policy spectrum, having dissented last fall in favor of a smaller rate cut than what the Fed delivered.
Nodding toward the potential ambitions of the dissenters, Michael Feroli, chief U.S. economist at JP Morgan, described their votes on Wednesday as "two job applications attached" to the FOMC statement, even as he noted, "we don't read too much into these dissents for the future direction of policy."
As for the rest of the Fed's policymakers, they voted on Wednesday in favor of holding rates steady because even as some risks to the outlook are emerging, they are still wary of what Trump's tariffs will do to price pressures.
"The economy is in a solid position" and "for the time being, we're well positioned to learn more about the likely course of the economy and the evolving balance of risks before adjusting our policy stance," Powell said at a press conference after the end of the Fed's two-day policy meeting this week.
Powell appeared to see no downsides to the dissents.
He described the FOMC gathering as a "good meeting" and added, "what you want from everybody, and also from a dissenter, is a clear explanation of what your thinking is and what are the arguments you're making ... We had that today."
Powell did not indicate whether the dissenters had moved the consensus. "We haven't made any decisions about September. We'll be monitoring all the incoming data and asking ourselves whether the federal funds rate is in the right place."
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