Three dissenting votes at FOMC and four regional Federal Reserve directors support interest rate hike, internal divisions at the Federal Reserve become apparent

According to information obtained by Zhihui Finance APP, the minutes of the Federal Reserve's discount rate meeting released on Tuesday show that, prior to the Federal Reserve's July policy meeting, directors of four out of the twelve Federal Reserve Banks voted in favor of raising the discount rate. This proposal to raise interest rates was ultimately rejected by the Fed's decision-making body.

At the July 28-29 policy meeting, the Federal Open Market Committee (FOMC) voted 9 to 3 to keep the policy rate unchanged, with the current federal funds rate target range set at 3.5% to 3.75%. Dallas Fed President Lorie Logan, Cleveland Fed President Beth Hammack, and Minneapolis Fed President Neel Kashkari cast dissenting votes, advocating for a 25 basis point rate hike. In addition, two regional Fed presidents without voting rights—Kelly Schmidt from Kansas City Fed and Musalem from St. Louis Fed—stated they would also support a rate increase if they had a vote.

Members of regional Fed Banks’ boards of directors are not policymakers and do not directly determine the Fed’s interest rate direction. However, they meet regularly with their respective regional Fed presidents, who have indicated that the directors’ opinions provide some reference value for their policy positions.

According to procedure, regional Fed Bank boards vote on the discount rate during regular meetings, but final decision-making authority resides with the Federal Reserve Board of Governors, which typically sets it in line with the upper end of the policy rate target range. From discount rate votes to dissenting voices at the FOMC meeting, policy disagreements within the Federal Reserve are becoming increasingly apparent.

The market's focus is now on the September policy meeting. The CME FedWatch Tool shows the market sees a 60.4% chance that the Fed will keep rates unchanged in September, and a 39.6% chance of a cumulative 25 basis point rate increase. Looking further ahead, by October, the probability of keeping rates unchanged stands at 45.7%, while the odds of a cumulative 25 basis point hike are 44.7%, and a cumulative 50 basis point hike are 9.7%.

Karen Ward, chief market strategist for EMEA at JPMorgan Asset Management, stated that signals from the US labor market suggest the Federal Reserve “should not raise rates” in September. She also said she feels “uneasy” about the US Treasury’s intervention in the bond market.

Ward also said the market hopes that during Federal Reserve Chairman Kevin Walsh’s speech at the annual Jackson Hole Symposium on Friday, he can provide “a bit more explicit guidance” on how the Fed views the economic situation and which factors are critical to interest rate decisions.