The internal divisions within the Federal Reserve over whether to cut interest rates immediately are intensifying as the latest report from the US Department of Labor released on Friday (August 1) showed that the employment figures fell below expectations. This could potentially prompt the Fed to cut rates as early as September.
On Friday, two Fed officials, Christopher Waller and Michelle Bowman, each issued public statements explaining their reasons this week for opposing keeping interest rates unchanged, warning that delaying rate cuts could pose risks to the economy.
Waller and Bowman both expressed their desire for a 0.25 percentage point rate cut, believing that the impact of tariffs on inflation is only temporary. This marks the first time since 1993 that two Fed officials have held differing opinions. The Federal Open Market Committee (FOMC) voted 9-2 on Wednesday (July 30) to keep rates unchanged.
The timing of these statements was just before the release of the Labor Department’s report, which indicated a soft job market and signs of economic slowdown, potentially leading the Fed to cut rates as early as September.
While the FOMC voted this week to maintain the policy rate at 4.25% to 4.50%, Waller and Bowman explicitly stated their support for a 0.25 percentage point rate cut. They believe that President Trump’s tariff policies have only a temporary impact on inflation and that continuing high rates would exacerbate downside risks to the labor market and economic growth.
Waller noted in his statement that an overly cautious wait-and-see approach may lead to policy lagging behind developments. He argued that the impact of tariffs on inflation has been “minimal” so far and recommended a gradual rate cut of up to 1.5 percentage points while closely monitoring the policy effects.
Similarly, Bowman supported a “gradual rate cut,” emphasizing the limited impact of tariffs on prices. She stated that without tariffs, the Fed’s key inflation gauge would be below 2.5%, near the 2% target.
“The price increases related to tariffs may be temporary and the temporary rise in inflation data should be ignored,” she said. “Delaying action could worsen the labor market and further slow economic growth.”
Bowman also mentioned that “if the demand situation doesn’t improve, businesses may have no choice but to start laying off employees.”
President Trump welcomed the views of these two Fed officials. Trump has long criticized Fed Chairman Jerome Powell, arguing that high rates increase government interest costs and push up mortgage rates.
On Friday, he once again criticized Powell as “stubborn” on his social media platform, “Truth Social,” and demanded a significant rate cut, suggesting that the Fed’s Board of Governors should take control of the Fed.
According to data released by the Labor Department on Friday, nonfarm payrolls in the US increased by only 73,000 in July, lower than the Dow Jones forecast of 100,000 but higher than 14,000 in June.
Furthermore, employment figures for May and June were significantly revised downward, totaling a decrease of 258,000 jobs, indicating nearly stagnant job growth in the second quarter.
The government estimates that only 33,000 jobs were added in total in these two months, with the extent of the revision described by the Labor Department as “exceptionally large.”
Earlier data this week showed a slowdown in household and business spending from April to June.
These figures collectively paint a picture of slowing economic growth. According to CME Group data, this has led the market to increase its expectation of a Fed rate cut in September to 75%.