WASHINGTON — The Federal Reserve held its benchmark interest rate steady at 3.5% to 3.75% at its July meeting, but fresh data showing an unexpected decline in U.S. employment has complicated the outlook for further rate increases as policymakers weigh persistent inflation against a weakening labor market.
The Federal Open Market Committee voted 9-3 on July 29 to maintain the target range. Governors Beth Hammack, Neel Kashkari and Lorie Logan dissented, preferring a quarter-percentage-point increase. The Fed said economic activity was expanding at a solid pace, while inflation remained above its 2% target.
The decision came before the Labor Department's July employment report, released on Aug. 7. The report showed nonfarm payrolls fell by 23,000 in July, while the unemployment rate edged down to 4.1% from 4.2% in June. Reuters reported that the decline in unemployment was driven in part by workers leaving the labor force.
The employment figures have reduced expectations in financial markets for a rate increase at the Fed's next meeting on Sept. 15-16. Reuters reported that futures markets shifted from pricing a greater-than-even chance of a September hike to a less-than-even probability after the jobs report.
The labor-market data add a new consideration for policymakers who have recently emphasized inflation risks. The Fed's July statement said job gains had kept pace with the workforce and unemployment had changed little, while also noting that inflation remained elevated partly because of supply shocks, including higher energy prices.
Several Fed officials have nevertheless indicated that higher rates remain possible if inflation fails to return toward the central bank's 2% objective. New York Fed President John Williams said it would be appropriate to act if the economy was not on a trajectory toward 2% inflation, while Fed Governor Lisa Cook said she would support an increase if necessary.
The U.S. economy expanded at a 1.5% annual rate in the second quarter, according to the Commerce Department's advance estimate, after growing 2.1% in the first quarter.
The Fed's next scheduled policy meeting is Sept. 15-16, with minutes from the July meeting due for release on Aug. 19.
