It’s likely that the Federal Open Market Committee cuts interest rates at the next scheduled meeting on September 17, according to fixed income markets. However, that’s more a reflection of recent soft jobs data as reported in August. Despite two dissents calling for lower rates, the FOMC’s July meeting minutes do not imply that a majority of policymakers were on the cusp of an interest rate cut.
July Minutes
The FOMC’s July meeting minutes as released on August 20 showed general confidence in the jobs market from most participants, but highlighted continued inflation concerns. The minutes noted that, “With regard to the outlook for inflation, participants generally expected inflation to increase in the near term. Participants judged that considerable uncertainty remained about the timing, magnitude, and persistence of the effects of this year’s increase in tariffs.”
Overall, in late July concerns about inflation appeared to dominate risks to the labor market for most, “Participants generally pointed to risks to both sides of the Committee’s dual mandate, emphasizing upside risk to inflation and downside risk to employment. A majority of participants judged the upside risk to inflation as the greater of these two risks, while several participants viewed the two risks as roughly balanced, and a couple of participants considered downside risk to employment the more salient risk.”
In addition, long-term concerns about inflation were discussed, “Several participants emphasized that inflation had exceeded 2 percent for an extended period and that this experience increased the risk of longer-term inflation expectations becoming unanchored in the event of drawn-out effects of higher tariffs on inflation.”
Therefore, despite public comments from certain policymakers signaling some willingness to look through tariff-related inflation as a one-time event, it appears the consensus from the FOMC, at least in late July, was that potential tariff-inflation was a real concern.
Recent Soft Jobs Data
Nonetheless, FOMC minutes released 3 weeks after the event, though insightful, are typically somewhat stale. The July FOMC meeting came before unexpectedly soft jobs data as reported on August 1.
Though the unemployment rate remained relatively stable. the pace of monthly job creation slowed considerably for the May to July period. That data may make policymakers more receptive to cutting interest rates to help manage potential labor market risks. However, there is more economic data to come before the FOMC’s scheduled September meeting, including August’s Employment Situation Report on September 5.
An Emerging Trade-Off
It may be that the FOMC is entering a period of more balanced trade-offs for monetary policy. In past years, with a broadly robust job market and elevated inflation, it was a relatively clear path for the FOMC to raise and maintain high interest rates to control inflation. The Trump administration’s pressure on the Fed with a pending decision on nominating a new Fed Chair for 2026 and addition pressure for lower rates may complicate policy too.
If we enter a period with elevated labor market risks and inflation remaining materially above the FOMC’s 2% annual target, then policymakers will have to weigh whether labor market risk or elevated inflation presents the greater concern.
Markets expect September’s meeting to see an interest rate cut to dial back more restrictive monetary policy. After that interest rate cuts are still likely according to the Atlanta Fed’s Market Probability Tracker. July’s meeting minutes did not signal quite the willingness to cut interest rates that fixed income markets may anticipate. Nonetheless, soft jobs data as released in August may have changed that assessment for some policymakers.