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Members of the Federal Open Market Committee (FOMC) – the Federal Reserve's monetary policy-setting arm – were divided ahead of committee's recent rate cut, according to minutes from the committee's July meeting released Wednesday. In addition, the committee begins its annual retreat today in Jackson Hole, Wyo., with Chairman Jerome Powell expected to speak Friday.

"The minutes from the FOMC's July meeting reflect the divisions within the committee, with the inflation issue in particular bringing it into stark relief, " said NAFCU Vice President of Research and Chief Economist Curt Long. "Two members wanted a 50 basis point cut in July due to the persistent shortfall in inflation below the committee's target, while others thought the recent rise in inflation justified their assessment that such weakness owed to transitory factors, and therefore warranted caution in easing policy.

"The events since the July meeting will only drive those two factions further apart and present a real challenge for Chairman Powell as he tries to present a unified front ahead of the September meeting," predicted Long.

FOMC participants who favored the rate cut cited slower growth abroad, increasing risks to the economic outlook and the persistent shortfall in inflation.

The committee also acknowledged ongoing risks associated with trade uncertainty, with several  of participants reporting that their business contacts were making decisions based on their belief that trade uncertainties would likely continue.

Following the July meeting, the committee cut interest rates by 25 basis points and moved to end its balance sheet adjustment in August – two months earlier than previously indicated.

Minutes released Wednesday also revealed that participants:

• continued to view sustained expansion of economic activity, strong labor market conditions and inflation near the committee's symmetric 2 percent objective as the most likely outcomes;
• agreed that the labor market had remained strong since their last meeting; and
• favored a future approach in policy that would be guided by incoming information and its implications on economic outlook, instead of following a preset course.

"The best guess at this point is for another 25-basis point cut, but that is not the foregone conclusion financial markets are assuming. Friday should provide more clarity as Powell speaks at the Fed's annual Jackson Hole conference," Long added.

The FOMC will next meet Sept. 17-18.