The Federal Reserve opted to maintain interest rates in July, marking the fifth consecutive meeting with no change to the federal funds rate, according to a report from Wells Fargo Economics. Yet beneath the surface of this widely expected decision, signs of internal disagreement are beginning to emerge. Notably, two Federal Reserve Governors dissented in favor of a rate cut—a rare move that underscores mounting tension within the Federal Open Market Committee (FOMC) as it navigates a complex economic landscape shaped by resilient labor markets, persistent inflation and a new round of trade tariffs.
The Committee left the benchmark rate at its current target range of 4.25 percent to 4.5 percent and made only minimal adjustments to its post-meeting statement. The Fed continued to describe inflation as “somewhat elevated” and characterized labor market conditions as “solid,” while noting that overall economic activity had “moderated” in recent months. However, behind the consensus lie growing cracks. Governors Christopher Waller and Michelle Bowman dissented from the decision, advocating for a 25-basis-point rate cut. It was the first double dissent by sitting governors since December 1993—a signal that the center may be holding, but not without strain. According to Wells Fargo economists, the dissents likely reflect both political dynamics and genuine policy disagreement. With Chair Jerome Powell’s term set to expire next spring, the actions of Waller and Bowman—both Trump appointees—may reflect subtle positioning ahead of the selection process for the next Fed Chair.
Still, the underlying economic context offers ample room for debate, particularly given the stagflationary pressure from higher tariffs and elevated core inflation. In his post-meeting press conference, Chair Powell struck a cautious tone, offering few clues about the likelihood of a rate cut at the next FOMC meeting in September. While he acknowledged a stable unemployment rate and still-elevated inflation, he also pointed to downside risks in the labor market as a reason for the Fed to maintain optionality. Powell’s comments suggest that the Committee remains data-dependent, awaiting further clarity before making its next move.
Key data releases between now and mid-September will heavily influence the Fed’s policy path. The Committee is expected to review two additional jobs reports and two more months of inflation data before its next meeting. In addition, trade policy developments—including updates on the average effective tariff rate—could impact the broader economic outlook and potentially tip the scales toward monetary easing. Currently, market participants are pricing in a roughly 49 percent probability of a 25-basis-point rate cut at the September meeting. Wells Fargo economists forecast a series of cuts beginning in September and continuing through October and December. However, they note that the risks are tilted toward a delayed start, depending on how labor market and inflation data evolve in the coming weeks.
Despite the dissents, the majority of Committee members appear content to hold rates steady for now. The FOMC’s decision to maintain the pace of balance sheet runoff signals continued commitment to quantitative tightening, even as economic momentum slows. The Committee also removed a prior reference to “diminished” uncertainty, now simply stating that uncertainty remains “elevated”—a subtle but meaningful shift in tone.
The dissents by Waller and Bowman, while anticipated, are significant in their implications. Double dissents by governors are extremely rare and typically signal an inflection point in policy direction. As Wells Fargo notes, Waller has historically served as a bellwether for broader Committee sentiment, suggesting that more members could begin shifting toward easing if upcoming data supports such a move. The July employment report—due just days after the Fed’s decision—will be the first of two critical labor market readings before the September FOMC meeting. A softer-than-expected jobs number could strengthen the case for a rate cut, echoing the pattern seen last summer when weak July data helped spur a 50-basis-point cut in September.
With internal divisions becoming more apparent and economic crosscurrents intensifying, the Fed’s next steps will hinge on a narrow balance of data and risk management. The report notes that staying attuned to labor market trends, inflation metrics and policy signals will be essential for navigating the second half of the year.
