Federal Reserve Faces Internal Divide as Two Governors Dissent on Rate Decision

The recent decision by the Federal Reserve to maintain interest rates has sparked a notable reaction from the U.S. Treasury Secretary, who suggested that the Federal Reserve Board appears to have developed a "crack." This observation comes after two Federal Reserve governors expressed dissent over the decision to keep rates unchanged. The Treasury Secretary hinted that the appointment of two nominees by Donald Trump, who are set to join the Federal Reserve next year, could help address this perceived division.

The Federal Reserve's decision to keep interest rates steady was made despite ongoing pressure from President Trump to lower them. The statement released after the meeting showed minimal changes from the previous one in June, but it acknowledged that economic growth had slowed in the first half of the year. The statement also highlighted that uncertainty about the economic outlook remained high. Notably, two governors, Michelle Bowman and Christopher Waller, voted against the decision, advocating for an immediate rate cut of 0.25 percentage points. Additionally, one member, Adriana Kugler, was absent and did not cast a vote.

Chairman Jerome Powell, during a press conference, indicated that the next steps could be more neutral but cautioned that it was difficult to predict whether data would clarify the situation by the next meeting. The dissenting votes and the absence of one member underscore the internal disagreements within the Federal Reserve, which could influence future policy decisions. The Federal Reserve's commitment to its dual mandate of maximum employment and price stability remains unchanged, and it continues to monitor risks that could impede its goals. The Federal Reserve also reiterated its plans to continue reducing its holdings of U.S. Treasury securities, agency debt, and agency mortgage-backed securities.