Federal Open Market Committee members are divided on which aspect of the Federal Reserve’s dual mandate should take precedence, with most still viewing inflation as the greater risk but some seeing maximizing employment as the primary issue to address, according to minutes from the FOMC’s July meeting.
The Fed is tasked with creating the economic conditions needed to maximize employment while holding down inflation. During its July meeting, the FOMC voted to hold the target range for the federal funds rate at 4.25%-4.5%. However, Governors Michelle Bowman and Christopher Waller voted against the policy, instead preferring to lower the target range by 0.25 percent.
The minutes show that the majority of FOMC participants judged the upside risk to inflation as the greater of these two risks. However, several participants viewed the two risks as roughly balanced, and a couple of participants considered the downside risk to employment the more salient risk.
“Regarding upside risks to inflation, participants pointed to the uncertain effects of tariffs and the possibility of inflation expectations becoming unanchored,” according to the minutes. “In addition to tariff-induced risks, potential downside risks to employment mentioned by participants included a possible tightening of financial conditions due to a rise in risk premiums, a more substantial deterioration in the housing market, and the risk that the increased use of AI in the workplace may lower employment.”
