As was expected, the Federal Open Market Committee on Wednesday voted to keep the fed funds rate at 4.25% to 4.5%, however, two committee members broke ranks and voted against the measure, strengthening the possibility of a rate cut later this year.
Michelle W. Bowman and Christopher J. Waller expressed their preference to lower the target range for the federal funds rate by 0.25 percentage point. This could be an indication of weakening support for Fed Chair Jerome Powell, who has been under extreme pressure by President Trump to cut rates.
In its statement, the committee says although “net exports continue to affect the data … the unemployment rate remains low and labor market conditions remain solid.” The committee notes that inflation remains somewhat high at 2.7% – well above its target of 2% – and uncertainty about the economic outlook remains elevated, leading it to decide to keep rates flat for the near-term.
“The news from today’s FOMC meeting was that two governors, Bowman and Waller, dissented from the decision to keep rates steady at this time,” says Mike Fratantoni, senior vice president and chief economist for the Mortgage Bankers Association (MBA), in a statement. “The FOMC statement acknowledges that economic growth has moderated but given the uncertainty about the future paths for inflation and unemployment, the majority of the FOMC members determined that the better course was to hold rates steady for now.”
“The dissenters had previewed their arguments in recent speeches,” Fratantoni says. “Their concerns are that the Fed would be better to cut rates now, before weakness in the job market becomes more apparent. While the tariff increases could well lead to a pickup in inflation, the dissenters view that the increase is likely to be short-lived.”
“MBA’s forecast is that conditions will evolve such that
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