On August 20, the Federal Reserve released minutes of its July monetary policy meeting.

At its July 29 - 30 meeting, the Federal Open Market Committee (FOMC) decided to keep the benchmark interest rate unchanged in the range of 4.25%-4.5% with the approval of "almost all" members, but two directors-Vice Chairman of Supervision Bowman and Director Waller-voted against it, advocating an immediate interest rate cut of 25 basis points.This is the first time since 1993 that more than one Fed governor has publicly expressed disagreement with interest rate decisions.

The minutes of the meeting showed that policymakers had broad consensus on the uncertainty of the economic outlook, but there were obvious differences in risk assessment.Most participants believed that the upside risks to inflation outweigh the downside risks to employment, especially considering possible price pressures from the Trump administration's tariff policies.However, some officials believe that the risks are basically balanced, while Bowman and Waller firmly believe that the threat to the job market is more urgent.This divergence was verified less than 48 hours after the meeting-July employment data released by the U.S. Department of Labor showed that job creation was far lower than expected, the unemployment rate unexpectedly climbed, the labor participation rate fell to its lowest level since late 2022, and May and June data were historically revised down by more than 250,000 jobs.This shocking jobs report directly shook the mainstream narrative that "the job market remains strong" and also provided strong support for Bowman and Waller's stance on interest rate cuts.

The complex intertwining of inflationary pressures and tariff policies

Inflation became the focus of discussion at the meeting.In July, the U.S. core CPI rose 3.1% year-on-year, exceeding market expectations. The producer price index (PPI) also unexpectedly surged by 0.9%, the largest monthly increase since June 2022.

The minutes of the meeting showed that Federal Reserve officials discussed in depth the impact of tariffs on inflation, pointing out that the effect of tariffs has become increasingly apparent in the data. Commodity price inflation has recently increased, while service price inflation has continued to slow down.Many participants pointed out that it may take some time for the full impact of the tariff increase to be fully felt in the prices of consumer goods and services, because foreign exporters bear at most only a small portion of the cost of the new tariffs, which means that domestic businesses and consumers in the United States bear the majority of the tariff costs.

This view is supported by Citigroup's latest analysis, which points out that the impact of tariffs on consumer prices has not occurred, but has occurred in a slower and more lasting form than the market expected.Although the worst of the "inflation blitz"(a rapid, all-round rise in prices) has been temporarily avoided, it may mean that a more sticky inflationary pressure is building that will gradually erode corporate profits and ultimately pass on to consumers.

Research by China Merchants Macroeconomics shows that as of August 7, 2025, taking into account the latest "reciprocal tariff" plan, the average U.S. import tariff rate has reached 12.0%.Based on the impact of the first round of tariff shocks on core commodities and durable goods, the second round of tariffs may push the core CPI up to 3.2-3.4%.

The job market and economic growth concerns

Although inflationary pressures persist, signs of weakness in the job market cannot be ignored.

The minutes of the meeting disclosed that officials advocating interest rate cuts believed that the risk of further deterioration of the labor market was needed.This concern was confirmed in the employment data released subsequently-employment growth slowed sharply in July, previous data was significantly revised down, and the labor participation rate fell.The data even triggered a strong reaction from President Trump, who fired the director of the Bureau of Labor Statistics, highlighting the fact that economic data has become a highly sensitive political issue.

The complex situation of the U.S. economy is not only reflected in employment data.The second-quarter GDP data was bright on the surface, but domestic demand fell to a two-and-a-half-year freezing point.Consumer confidence also fell. Data released by the University of Michigan showed that the U.S. consumer confidence index fell 5% in August, the first decline in four months.Several chains have warned that customer traffic continues to decline, sales have dropped sharply, and many Americans are cutting back on eating out, a sign that they are facing financial pressure, especially among low-and middle-income families.This change in consumer behavior reflects the difficult choices American families make to save money in their daily lives.

Financial stability and the emerging impact of stablecoins

Another noteworthy aspect of the minutes was the Fed's discussion of financial stability.Officials pointed out that there are some vulnerabilities in the current U.S. financial system that need to be monitored, and some warned that the pressure of high asset valuations is worrying.Other officials talked about the fragility of the U.S. Treasury market, expressing their concerns that the ability of market makers to act as intermediaries, the rising participation of hedge funds, and insufficient market depth have made the U.S. bond market vulnerable.

Particularly remarkable was that for the first time, Fed officials discussed in detail the impact stablecoins could have on the financial system.Participants pointed out that after the passage of the Genius Act, the use of stablecoins may increase and may help improve the efficiency of payment systems.They also said stablecoins could boost demand for their supporting assets, including U.S. Treasuries.This shows that the Fed is taking the development of digital currencies seriously and assessing its possible wide-ranging impact on monetary policy execution and the financial system.Officials expressed concern about the wide-ranging impact that stablecoins may have on the banking system, financial system and monetary policy implementation, and believed that this area deserves high attention, including close monitoring of various assets used to support stablecoins.

Political pressure and challenges to the independence of the Federal Reserve

The minutes of the meeting were released against the backdrop of unprecedented political pressure from the White House on the Federal Reserve.After Trump returned to the White House, he publicly criticized Federal Reserve Chairman Powell on many occasions, expressing his dissatisfaction with high interest rates, believing that high interest rates hindered economic growth, and repeatedly asked the Federal Reserve to cut interest rates quickly.Trump even put forward the extreme request of cutting interest rates by 300-400 basis points, believing that this would save the U.S. government trillions of dollars in interest expenses every year.This political pressure poses serious challenges to the Fed's independence.

What is even more worrying is that Trump is preparing for Powell's successor.The unexpected resignation of one of the seven Fed governors provides Trump with the opportunity to nominate new governors.He has nominated Milan, chairman of the White House Council of Economic Advisers, to fill the vacancy, and Milan has reportedly advocated that "the president should have the right to fire Federal Reserve governors at any time" and even wants to break the central bank into 12 parts that obey state governments.This direct threat to the independence of central banks could have serious consequences-ING warned that if Powell was forced to leave, the U.S. bond spread could widen by 200 basis points; Deutsche Bank simulations showed that the forced removal of the chairman would trigger a sharp fall in the dollar by 3%, which is more deadly than Nixon's intervention in the Federal Reserve in the 1970s.

The Fed faces an extremely complex decision-making environment.

On the one hand, inflationary pressures persist and may even be exacerbated by the implementation of the second round of tariffs; on the other hand, the job market shows signs of weakness and the momentum of economic growth may weaken.The minutes of the meeting showed that officials realized that if inflation remained high and the labor market continued to deteriorate, they would face a "dilemma."

Markets are currently paying close attention to Powell's upcoming speech at the Annual Global Central Bank Meeting in Jackson Hole, which will be his last keynote speech on this occasion during his tenure.Investors are looking forward to getting more signals about the path of interest rates: Will he tend to support Bowman and Waller's interest rate cuts to protect the job market?Or will we continue to be cautious and give priority to inflationary pressures?As of the weekend, CME's "Federal Reserve Observation" tool showed that the probability of interest rate cuts in September dropped from above 90% to 83%, and the probability of three consecutive interest rate cuts by the end of the year dropped from around 50% to 34%, indicating that interest rate cuts were twice during the year. Return to the benchmark scenario.