Fed Dissenters Appeared Alone In Favoring Rate Cut At July Meeting, Minutes Show

Summary:

The two Federal Reserve policymakers who dissented against the U.S. central bank decision's to leave interest rates unchanged last month appear not to have been joined by other policymakers in voicing support for lowering rates at that meeting, a readout of the gathering released on Wednesday showed.

Key points:

● Fed minutes show 'almost all' officials preferred leaving rates unchanged

● Labor data supports concerns of Bowman and Waller on job market

● Inflation concerns persist amid Trump's tariff policies

"Almost all participants viewed it as appropriate to maintain the target range for the federal funds rate at 4.25% to 4.50% at this meeting," the minutes of the July 29-30 meeting said.

Fed Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller both voted against the decision to leave the benchmark interest rate unchanged, favoring instead a quarter-percentage-point reduction to guard against further weakening of the job market. It was the first time since 1993 that more than one Fed governor dissented against a rate decision.

Not even 48 hours after the conclusion of last month's meeting, data from the Labor Department appeared to validate the concerns of Bowman and Waller when it showed far fewer jobs than expected were created in July, a rise in the unemployment rate and a drop in the labor force participation rate to the lowest level since late 2022.

More unsettling, though, was an historic downward revision for estimates of employment in the previous two months. That revision erased more than a quarter of a million jobs thought to have been created in May and June and put a hefty dent in the prevailing narrative of a still-strong-job market. The event was so angering to President Donald Trump that he fired the head of the Bureau of Labor Statistics.

Data since then, however, has provided some fodder for the camp more concerned that Trump's aggressive tariffs risk rekindling inflation to hold their ground against moving quickly to lower rates. The annual rate of underlying consumer inflation accelerated more than expected in July and was followed by an unexpectedly large jump in prices at the producer level.

The minutes showed officials continued an active debate on the effects of tariffs on inflation and the degree of restrictiveness in their policy stance. Several policymakers commented that the current level of the federal funds rate may not be far above its neutral level, where economic activity is neither stimulated nor constrained.

Fed policymakers assessed that the effects of higher tariffs had become more apparent in some goods prices but that the overall effect on the economy and inflation remained to be seen, the minutes showed.

Looking ahead, participants noted they may face difficult tradeoffs ahead if elevated inflation proved more persistent while the job market outlook weakened.

TRUMP'S PRESSURE CAMPAIGN

Heading into the release of the minutes, CME's FedWatch tool assigned an 85% probability of a quarter-percentage-point reduction in the Fed's policy rate at the September 16-17 meeting. That rate has been unchanged since December.

The minutes were released just two days before a highly anticipated speech from Fed Chair Jerome Powell at the annual economic symposium near Jackson Hole, Wyoming, which is hosted by the Kansas City Fed. Powell's keynote speech on Friday morning - set to be his last such address as head of the central bank, with his term expiring next May - could show whether he has joined ranks with those sensing the time has come for steps to shield the job market from further weakening or if he remains in league with those more wary of inflation in light of its moves away from the Fed's 2% target.

The lack of rate cuts since Trump returned to the White House has agitated the Republican president, and he regularly lashes out at Powell for not engineering them.

Trump is already in the process of screening possible successors to Powell. After the unexpected resignation earlier this month of one of the seven Fed governors, Trump has a chance to put his imprint on the central bank soon.

The president has nominated Council of Economic Advisers Chair Stephen Miran to fill the seat recently vacated by former Fed Governor Adriana Kugler, a term that expires at the end of January. It is unclear whether Miran will win Senate confirmation before the Fed's next meeting.

On Wednesday Trump demanded that Fed Governor Lisa Cook resign from the central bank over allegations of wrongdoing connected to mortgages on properties she owns in Georgia and Michigan.

Source: Reuters

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James Whitman

Economic

Most Federal Reserve officials highlighted the risk to inflation as outweighing concerns over the labor market at their meeting last month, as tariffs fueled a growing divide within the central bank’s rate-setting committee.

Officials acknowledged worries over higher inflation and weaker employment, but “a majority of participants judged the upside risk to inflation as the greater of these two risks,” the minutes of the Federal Open Market Committee’s July 29-30 meeting said.

Policymakers left interest rates unchanged in a range of 4.25% to 4.5% last month, citing elevated uncertainty in their outlook as economic activity moderated during the first half of the year. Their statement at the time characterized the labor market as “solid” but said inflation remained “somewhat elevated.”

In his press conference following the meeting, Chair Jerome Powell said the inflationary impact from tariffs could well be temporary, but the central bank needed to guard against a more persistent effect.

Committee members debated whether tariffs would generate a one-time price impact or a more lasting inflation shock.

“Several participants emphasized that inflation had exceeded 2% 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,” the minutes said.

Many officials also noted that it could take some time for the full effects of tariffs to be felt in consumer goods and services prices.

The minutes arrived two days before Powell will deliver a closely-watched speech in Jackson Hole, Wyoming, a stage he has previously used to steer investor expectations on interest rates.

Recent economic data has supported the cautious view on inflation, but undermined confidence on employment.

The biggest spike in wholesale inflation in three years provided the latest sign that companies have begun to raise prices to offset rising input costs. Some Fed officials have voiced concerns that the levies will influence prices well into next year.

But large downward revisions to payroll gains revealed weakness in the labor market in the three months through July. Hiring hit its slowest pace since the pandemic and unemployment ticked up to 4.2%.

Growing Dissents

Even before the release of those numbers, signs of weakness in the jobs market had prompted Governors Christopher Waller and Michelle Bowman to dissent at the July meeting in favor of a quarter-point rate cut.

Policymakers will receive another jobs report and more inflation data before they meet again in mid-September.

The minutes also come after President Trump called for the resignation of Fed Governor Lisa Cook after an administration official accused her of mortgage fraud.

Trump has repeatedly called for the Fed to lower interest rates, echoed by his top officials and a growing list of candidates in consideration to succeed Powell when his term as chair ends in May. Treasury Secretary Scott Bessent argued last week in favor of a half-point cut by September.

The minutes showed officials held a discussion over financial stability, with several pointing to “concerns about elevated asset valuation pressures.”

Source: Bloomberg

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Manuel

Central Bank

Political

President Donald Trump and his allies are demanding Federal Reserve Governor Lisa Cook resign over alleged owner-occupancy fraud — a practice the central bank itself has found to be “broad-based” across the US.

Philadelphia Fed researchers in a 2023 report assessed the number of “fraudulent investors” in the mortgage market, which they defined as those who had more than one owner-occupied home purchase loan within four quarters after the first one was originated. Federal Housing Finance Agency Director Bill Pulte has said that Cook took a mortgage on a property in Ann Arbor, Michigan, stipulating that it would be her primary residence, and then two weeks later declared the same for another mortgage on a Georgia property.

The paper’s data set consists of 584,499 loans made from 2005 to 2017. Of those, 22,431 were considered fraudulent. The share of those claiming occupancy for better mortgage terms peaked ahead of the 2008 financial crisis, though remained steady for much of the ensuing decade at about 2% to 3%.

The findings are based on a subsample of data, meaning the number of mortgages fitting the central bank’s criteria could be higher. The researchers also caution that there are likely cases of accidental occupancy fraud, such as when borrowers were unable to sell their original home because of a worse-than-expected real estate market.

Scrutinizing the mortgages of Cook, who was nominated to the Fed by former President Joe Biden, appears to be the latest way in which Trump and his allies are using novel methods to pressure the central bank to lower interest rates.

The president said Wednesday that Cook “must resign now,” while Pulte claimed his accusations give him “cause to fire” her. If she were forced out, it would create another opening for Trump to appoint someone who would likely push for more aggressive rate cuts.

Pulte said “anybody can go look at these public documents” from Cook in a CNBC interview Wednesday. He cited four criminal statutes for Attorney General Pam Bondi to probe for potential charges. No charges have been filed and it’s not clear whether she will investigate.

Ronel Elul, a senior economic adviser and economist at the Philadelphia Fed who co-authored the 2023 report, didn’t elaborate beyond what was in the paper when reached for comment.

Cook, in a statement Wednesday, said she has “no intention of being bullied to step down from my position because of some questions raised in a tweet.” She added that she is “gathering the accurate information to answer any legitimate questions and provide the facts.”

David Joffe, a federal criminal defense attorney in Fort Lauderdale, Florida, said in his experience, occupancy cases are rare.

Still, “like anything else, if you look at it under a microscope you’re bound to find something that’s wrong,” he said in an interview.

Mortgage fraud cases tend to relate to overstating assets and income rather than misstating a primary residence, said Stephen Cazares, a former federal prosecutor who’s now a defense lawyer at Foundation Law Group. Those based solely on a home being falsely identified as a primary residence are “unusual” but “not unheard of,” he said.

They’re rare because the theoretical loss to a financial institution is lower in cases based on primary residence, where the lender “basically got cheated out of a higher interest rate” rather than the value of the home, Cazares said.

The Philadelphia Fed report found that about a third of all property investors misrepresent their status as owner-occupants. It found that doing so allowed them to obtain lower interest rates and higher loan-to-value ratios.

“This type of fraud is difficult to detect until long after the mortgage has been originated,” the researchers said in their paper.

Cook’s mortgages in question were from 2021.

Trump’s administration has also made mortgage fraud allegations against California Senator Adam Schiff and New York Attorney General Letitia James. Both are Democrats and political foes of Trump.

Source: Bloomberg

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James Whitman

Economic

In 2024, Kazuo Ueda delivered Japan's first interest rate hike in 17 years, a bold shift for a central bank once dominated by advocates of ultra-loose monetary settings - now, the Bank of Japan head is among the policy board's least hawkish members.

The 73-year-old governor will attend the Federal Reserve's Jackson Hole annual symposium this week, where Chair Jerome Powell's assessment of the American economy and hints on the next U.S. rate cut will be factors in Japan's own deliberations.

Ueda has become one of the more cautious members of the BOJ's nine-member board in recent months and his concerns about the economic impact of U.S. tariffs are likely to provide some restraint among his fellow policymakers who are calling for more rate hikes, analysts and sources say.

An analysis in the BOJ's recent outlook report in part underscores his caution over the expected hit to Japan's economy from tariffs that could complicate its decision around the timing of the next rate hike.

"Japan's trade deal with the U.S. reduced, but did not eliminate, uncertainty over tariffs," said a source familiar with the central bank's thinking, a view echoed by another source. "It's too early for the BOJ to be optimistic on Japan's economy."

Ueda has faced growing calls from within his board to pay more attention to mounting inflationary pressure in Japan's once deflation-prone economy.

A U.S. rate cut could push up the yen against the dollar, which may ease concern about the inflationary impact of a weak yen - but could hurt exporters' profits depending on the pace.

Stubbornly high food inflation has led some BOJ board members to warn of second-round price effects that could warrant another rate hike, a summary of the bank's July meeting showed.

The hawkish signals contrast with Ueda's post-meeting comments justifying going slow on rate hikes on the view underlying inflation, which focuses on domestic demand and wages, remains below the BOJ's target.

"Governor Ueda appears to pay particularly close attention to the U.S. economy," said former BOJ board member Takahide Kiuchi. "If he becomes more convinced that the U.S. economy will stabilise, the BOJ could eye a rate hike this year."

CIRCLE OF HAWKS

On the surface, the hawks appear to be gaining an upper hand.

Among current board members, three - Naoki Tamura, Hajime Takata and Junko Koeda - are seen by markets as hawks due in part to their recent comments warning that rising food prices could risk leading to broader-based, sustained inflation.

Deputy governor Ryozo Himino, who once warned that keeping real interest rates negative for too long would be "abnormal", is considered the most hawkish among the BOJ's leadership.

By contrast, the doves, who dominated the board when Ueda's predecessor Haruhiko Kuroda deployed a massive stimulus in 2013, have seen their presence and voice diminished.

Toyoaki Nakamura, who voted against a rate hike in January, retired in June and was succeeded by Kazuyuki Masu, who is seen as taking a neutral stance on policy. Once a fan of heavy money printing, Asahi Noguchi has also turned more neutral and voted for raising rates in January.

Such shifts in the board's policy bias put Ueda and his career central banker-turned deputy Shinichi Uchida in the more dovish camp, as their comments continue to focus on downside risks to Japan's fragile economy.

Their caution reflects the BOJ's preference to await more data to gauge whether the global economy, including Japan's, will withstand the hit from U.S. tariffs, say sources familiar with the bank's thinking.

It also reflects lingering worries within the BOJ that the damage to exports and capital expenditure will intensify in coming months - as predicted by the bank's economists.

In analyses included in the July quarterly outlook, BOJ economists warned company profits are likely to fall this year because of U.S. tariffs, hurting capital expenditure.

There is good reason to worry. While Japan's trade deal with the U.S. agreed to cut tariffs for its mainstay auto exports, Washington has not made clear the timing of the reduction.

Many analysts expect exports, which lifted Japan's second-quarter GDP, to lose momentum later this year as the hit from U.S. tariffs deepens.

Even hawkish board members warn such risks could warrant caution on rate hikes.

"We need to scrutinise whether any negative impact from U.S. tariffs could appear," board member Takata said in a speech on July 3.

Despite the board's hawkish tilt, Ueda's cautious stance may prevail given the influence the governor holds over BOJ decision making.

With support from staff of key divisions, the governor prepares proposals on policy and interest rates for a vote by the board. Most have been approved unanimously or by a majority, including the BOJ's exit from a decade-long stimulus last year.

The governor's proposal has never been voted down since the current board framework took shape in 1998.

"I don't see any tough negotiator in the current board who could stage a revolt. It's hard to imagine the hawks proposing a rate hike against the governor's will," said former BOJ official Nobuyasu Atago, who used to be staff for hawkish ex-board member Miyako Suda.

"Governor Ueda's leadership within the board appears to be fairly strong."

Source: Reuters

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Manuel

Cryptocurrency

Hyperliquid has achieved the highest revenue per employee globally, at $106 million, surpassing traditional technology giants and the previous record holder, Tether Limited.

The revenue-per-employee metric places Hyperliquid significantly ahead of established technology companies. Data gathered by Hyperliquid France puts Tether in second with $93 million per employee, while OnlyFans ranks third at $37.6 million.

The decentralized derivatives exchange operates with just 11 core contributors, as CEO and co-founder Jeff Yan confirmed in a recent interview.

This minimal workforce generates an annualized revenue of $1.167 billion, based on DefiLlama estimates as of Aug. 20. Traditional tech giants lag considerably, with Nvidia at $3.6 million, Apple at $2.4 million, and Meta at $2.2 million per employee.

Hyperliquid’s revenue generation stems from trading fees collected on its decentralized perpetual futures exchange.

The platform captures a percentage of swap fees directed to treasury, token holders, and token buybacks, creating a direct revenue stream from trading volume without requiring extensive operational overhead.

The exchange’s automated market-making and derivatives trading infrastructure operates with minimal human intervention, allowing the small team to focus on protocol development and optimization rather than day-to-day operational management.

Rapid revenue accumulation

Since December, Hyperliquid has accumulated $589.11 million in revenue, demonstrating rapid growth acceleration in recent months. The platform’s 30-day revenue performance positions it as the third-largest revenue generator among crypto protocols, with $95.63 million added.

As a result, Hyperliquid trails only stablecoin issuers Tether and Circle, which generated $629.19 million and $203.91 million, respectively. This performance places the derivatives platform ahead of other known protocols, including Tron, Jupiter, and Pump.fun.

The comparison with traditional technology companies highlights the efficiency potential of decentralized finance protocols.

While Apple employs approximately 164,000 workers to generate $383 billion annually, Hyperliquid’s 11-person team produces nearly $1.2 billion in revenue through automated trading infrastructure.

The platform’s success demonstrates how decentralized exchange protocols can achieve massive scale with a reduced workforce, challenging traditional assumptions about revenue generation and operational requirements in traditional financial services.

Source: Cryptoslate

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Manuel

Bond

Political

President Donald Trump has bought hundreds of bonds since he returned to office, including those sold by US companies affected by the sweeping changes to federal policies he’s championed.

The 690 transactions, the first of which was made the day after his inauguration, total at least $103.7 million, according to a document released by the White House on Tuesday that disclosed the billionaire’s investing activity this year through early August.

In addition to municipal bonds issued by local governments, school boards, airport authorities and gas districts, Trump bought corporate debt in tranches of at least $500,000 each from Qualcomm Inc., Home Depot and T-Mobile US Inc. on Feb. 10. He also purchased at least $250,000 of debt from Facebook owner Meta Platforms Inc. later that month.

The report, which all federal elected officials and appointees who trade must submit, doesn’t provide exact amounts or prices, since only broad ranges of transactions involving stocks, bonds, commodity futures and other securities are required. Trump reported no sales.

The investments provide another example of how the president, whose net worth is pegged at $6.4 billion by the Bloomberg Billionaires Index, continues to pursue wealth accumulation while in office. Unlike his predecessors, Trump didn’t divest or move his assets into a blind trust with an independent overseer. His sprawling business empire is managed by two of his sons and operates in several areas that intersect with presidential policy.

Trump has held meetings with leaders of businesses whose supply chains have been upended by his implementation of the highest tariffs in decades as well as technology industry executives.

The 33-page filing, which was dated Aug. 12, was provided to the Office of Government Ethics.

Neither Trump nor any of his family members made the investment decisions, according to a senior White House official. Independent financial managers made the bond purchases using programs that replicate recognized indexes when making investments, the official said, adding that OGE signed off on the filings.

The president will continue to use financial managers to make investments, and will file reports in the future as required by the law, the official said.

In an earlier financial disclosure report spanning his activity in 2024, Trump listed hundreds of bonds held in personal investment accounts that are separate from his business empire. The latter encompasses properties like his Florida resort Mar-a-Lago, his stake in Trump Media & Technology Group Corp. and crypto ventures that have added at least $620 million to his fortune in recent months, according to the Bloomberg index.

Under federal ethics law, presidents aren’t required to divest assets that may pose conflicts of interest, but they have done so anyway. Trump is the first president to buck that since the law was passed in 1978.

Source: Bloomberg

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Manuel

Economic

China–U.S. Trade War

The Trump tariffs present something of a mystery. Trump's new import taxes raise the cost of many imported products by nearly 20%, on average. Yet price changes at the wholesale and retail level are nowhere near that magnitude. The higher cost of tariffs appears to be hiding deep inside global supply chains.

One new clue helps explain why Trump's new consumption taxes aren't fully hitting consumers just yet. Analysis by Capital Economics finds that the actual tariff rate paid on imports in June was just 9%. At the time, analysts estimated the average tariff rate to be around 15%. It turned out to be lower in reality because many US importers shifted their mix and source of imports to minimize the cost of the tariffs.

Research outfits such as the Yale Budget Lab, along with many private firms, have been trying to estimate average tariff rates at every step of Trump's convoluted trade war. That data helps economists estimate the effect of tariffs on the economy, while investors try to suss out which firms and sectors will be helped or hurt by the new taxes.

Estimates of the average tariff rate have changed many times during the past six months as Trump has threatened new tariffs, imposed some, delayed others, announced trade agreements, and changed his mind. The average tariff was about 2.5% when Trump took office. It went as high as 28% in April and May, according to the Yale Budget Lab. Since then, it has dropped to around 19%.

But those estimates rely on assumptions about what US firms will continue to import and from where. The actual June data shows that US importers were craftier than expected. "The composition of imports has shifted compared to 2024, with a higher proportion coming from countries with relatively low tariff rates," Capital Economics found.

The June data, for instance, shows that fewer imports came from China, which faced a 40% tariff rate. More imports came from Vietnam, Taiwan, and India, which faced lower rates at the time. That pushed the actual tariff rate lower than if import shares by country had stayed the same.

US businesses also shifted the kind of stuff they brought into the country. Imports of steel and aluminum — generally subject to a new 25% tariff — fell as a portion of all imported products. But there was an increase in electronics exempt from tariffs.

A third factor keeping the tariff rate fairly low was more "compliant" trade with Canada and Mexico than expected. That means there was more trade in goods that meet domestic-content requirements and are therefore exempt from the new Trump tariffs.

The June trend probably reflects the delayed onset of tariff inflation, rather than the total avoidance of it. Importers have been ducking and weaving as circumstances allow, but they can't do that forever. They can stock inventories with cheaper low-tariff goods while running down stockpiles of costlier high-tariff goods — for a while. But at some point, demand will require them to replenish all inventories, regardless of the tariffs.

Plus, Trump is wise to the transshipment of goods from a high-tariff country to the US via a low-tariff country, and some of his trade rules specifically target that. Imports from Vietnam, for instance, face a 20% tariff, but it's 40% if those products really come from China or some other country and just make a stop in Vietnam on their way to the US.

Even with lower-than-expected tariff rates — for now — tariff inflation is beginning to materialize. Monthly tariff revenue collected by the government has jumped from about $8 billion per month before Trump to about $30 billion now. That tax revenue comes from US businesses that have to pay the tariffs when they take possession of imported goods. It's real money that real Americans are forking over.

Wholesale prices in July jumped by the most in three years, confirming that importers are now paying more for goods. During the second quarter earnings season, dozens of big companies, including Apple (AAPL), Ford (F), General Motors (GM), Johnson & Johnson (JNJ), Kimberly-Clark (KMB), and Procter & Gamble (PG), said tariffs are denting profit margins.

Citi estimates that, for now, companies are absorbing most of the cost of tariffs through lower margins and supply chain workarounds. But the pain will eventually flow through to consumers.

"US firms appear to be absorbing 60%-70% of the tariffs," Citi researchers said in an August 20 analysis. "However, we doubt that this will prove sustainable. We expect that firms will increasingly seek to pass the tariffs through to their foreign suppliers and US customers."

Trump's trade deals will eventually yield a much clearer picture. The past several months have been a hodgepodge of on-and-off tariffs that have dramatically distorted trade flows. But a year from now, say, there will likely be across-the-board tariffs on most imports that range from 15% to 40%, plus product-specific tariffs on certain product categories that leave nowhere to hide. If you haven't noticed tariff inflation yet, you will soon.