Minutes of the Federal Open Market Committee, July 29–30, 2025

A joint meeting of the Federal Open Market Committee and the Board of Governors of the Federal Reserve System was held in the offices of the Board of Governors on Tuesday, July 29, 2025, at 9:00 a.m. and continued on Wednesday, July 30, 2025, at 9:00 a.m.

author: Economician

Reading Time:

13 minutes

category:economy

Key takeaways

Policy decision — no change: The Committee kept the target range for the federal funds rate at 4¼–4½%.
Dissenters: Two members (Governors Bowman and Waller) preferred a 25 bp cut at this meeting.
Economic read: Growth moderated in H1 2025, the unemployment rate remains low, and inflation is still somewhat elevated — uncertainty is high.
Forward guidance: The Committee will assess incoming data and is prepared to adjust policy as appropriate to achieve maximum employment and 2% inflation.
Market expectations: Desk and market pricing showed expectations of one to two 25-bp cuts later this year (modal path in Desk survey = two cuts).
Reserves and money markets: Officials flagged a likely decline in reserves because of SOMA runoff and rebuilding of the Treasury General Account (TGA); standing repo (SRF) saw notable quarter-end use and will be important for money-market functioning.
Operational settings: The minutes specified operational directives (e.g., SRF minimum bid, ON-RRP offering rate, reinvestment/rollover caps) to keep the effective funds rate in range.
Inflation drivers: Members discussed tariff and trade-policy effects on prices and noted some disagreement on how persistent those effects will be.
Tone: The Committee remains data-dependent and cautious — balancing signs of resilience with emerging downside risks to activity and employment.
Next meeting: Scheduled for Sept. 16–17, 2025.

Review of Monetary Policy Strategy, Tools, and Communications

Participants continued their discussion related to the ongoing review of the Federal Reserve's monetary policy strategy, tools, and communication practices (framework review). They observed that they had made important progress toward revising the Committee's Statement on Longer-Run Goals and Monetary Policy Strategy (consensus statement). Participants discussed potential revisions to the consensus statement that would incorporate lessons learned from economic developments since the 2020 framework review and would be designed to be robust across a wide range of economic conditions. Participants noted that the Committee was close to finalizing changes to the consensus statement and would do so shortly.

Developments in Financial Markets and Open Market Operations

The manager began by reviewing financial market developments. Over the intermeeting period, the expected path of the policy rate and longer-term Treasury yields remained largely unchanged, while equity prices increased, credit spreads narrowed, and the dollar depreciated slightly. The manager noted that markets continued to be attentive to news related to trade policy, though markets' reaction to incoming information on this topic was more restrained than in April and May.

The manager turned next to policy rate expectations, which held steady over the intermeeting period, consistent with a relatively stable macroeconomic outlook. The median modal path of the federal funds rate, as given in the Desk survey, was unchanged from the corresponding path in the June survey and continued to indicate expectations of two 25 basis point rate cuts in the second half of this year.

Market-based measures of policy rate expectations were also little changed and indicated expectations of one to two 25 basis point rate cuts by the end of the year.

The manager then turned to market pricing of risky assets. The increases in equity prices and narrowing of credit spreads suggested that markets assessed that the overall U.S. economy was remaining resilient; still, financial markets appeared to be making distinctions between individual corporations on the basis of the size and quality of their earnings.

Valuations of the S&P 500 index continued to move above long-run average levels, mostly driven by optimism about the largest technology firms' scope to benefit from the further adoption of artificial intelligence (AI). However, valuations of an index of smaller-capitalization firms, although higher over the intermeeting period, remained below their historical averages.

The manager observed that two factors contributed to this slight increase: the normal upward pressure on money market rates associated with the June quarter-end, and the rise in net Treasury bill issuance amid the rebuilding of the Treasury General Account (TGA) balance following the increase in the debt limit in early July.

On June 30, as market rates climbed modestly above the standing repo facility's (SRF) minimum bid rate at quarter-end, there was material usage of the facility, with counterparties borrowing a bit more than $11 billion, the highest utilization to date.

The manager also discussed the projected trajectory of various Federal Reserve liabilities. With increased Treasury bill issuance associated with the rebuilding of the TGA balance likely to result in a rise in money market rates, take-up at the overnight reverse repurchase agreement (ON RRP) facility was expected to decline to low levels relatively soon.

Market indicators continued to suggest that reserves remained abundant; however, ongoing System Open Market Account (SOMA) portfolio runoff, a substantial expected increase in the TGA balance, and the depletion of the ON RRP facility were together likely to bring about a sustained decline in reserves for the first time since portfolio runoff started in June 2022. Against this backdrop, the staff would continue to monitor indicators of reserve conditions closely.

The manager also noted that there would be times—such as quarter-ends, tax dates, and days associated with large settlements of Treasury securities—when reserves were likely to dip temporarily to even lower levels. At those times, utilization of the SRF would likely support the smooth functioning of money markets and the implementation of monetary policy.

By unanimous vote, the Committee ratified the Desk's domestic transactions over the intermeeting period. There were no intervention operations in foreign currencies for the System's account during the intermeeting period.

Staff Review of the Economic Situation

The information available at the time of the meeting indicated that real GDP expanded at a tepid pace in the first half of the year. The unemployment rate continued to be low, and consumer price inflation remained somewhat elevated.

(…the minutes contain a detailed staff review of labor market conditions, inflation developments, household spending, business fixed investment, international developments, and financial conditions. The Committee discussed the persistence and sources of inflationary pressures, including the effects of trade policy and tariffs on prices and supply chains. Participants noted that while some indicators suggested moderation in activity, others pointed to resilience—leading to an elevated degree of uncertainty about the outlook.)

By contrast, if labor market conditions were to weaken materially or if inflation were to come down further and inflation expectations remained well anchored, then it would be appropriate to establish a less restrictive stance of monetary policy than would otherwise be the case. Participants noted that the Committee might face difficult tradeoffs if elevated inflation proved to be more persistent while the outlook for the labor market weakened.

Participants agreed that, if that situation were to occur, they would consider each variable's distance from the Committee's goal and the potentially different time horizons over which those respective gaps would be anticipated to close. Participants noted that, in this context, it was especially important to ensure that longer-term inflation expectations remained well anchored.

They agreed that, with reserves projected to decline amid the rebuilding of the TGA balance following the resolution of the debt limit situation, it was important to monitor money market conditions closely and to continue to evaluate how close reserves were to their ample level. A few participants also assessed that, in this environment, abrupt further declines in reserves could occur on key reporting and payment flow days.

They noted that, if such events created pressures in money markets, the Federal Reserve's existing tools would help supply additional reserves and keep the effective federal funds rate within the target range. A couple of participants highlighted the role of the SRF in monetary policy implementation—as reflected in increased usage at the June quarter-end—and expressed support for further study of the possibility of central clearing of the SRF to enhance its effectiveness.

Committee Policy Actions

In their discussions of monetary policy for this meeting, members agreed that although swings in net exports had affected the data, recent indicators suggested that the growth of economic activity had moderated in the first half of the year. Members agreed that the unemployment rate had remained at a low level and that labor market conditions had remained solid. Members concurred that inflation remained somewhat elevated.

Members agreed that uncertainty about the economic outlook remained elevated and that the Committee was attentive to the risks to both sides of its dual mandate.

In support of the Committee's goals, almost all members agreed to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. A couple of members preferred to lower the target range for the federal funds rate by 25 basis points at this meeting. These members judged that, excluding tariff effects, inflation was running close to the Committee's 2 percent objective and that higher tariffs were unlikely to have persistent effects on inflation.

Furthermore, they assessed that downside risk to employment had meaningfully increased with the slowing of the growth of economic activity and consumer spending, and that some incoming data pointed to a weakening of labor market conditions, including low levels of private payroll gains and the concentration of payroll gains in a narrow set of industries that were less affected by the business cycle.

Members agreed that in considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee would carefully assess incoming data, the evolving outlook, and the balance of risks. All members agreed that the post meeting statement should affirm their strong commitment both to supporting maximum employment and to returning inflation to the Committee's 2 percent objective.

Members agreed that, in assessing the appropriate stance of monetary policy, the Committee would continue to monitor the implications of incoming information for the economic outlook. They would be prepared to adjust the stance of monetary policy as appropriate if risks emerged that could impede the attainment of the Committee's goals.

Members also agreed that their assessments would take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

After the discussion, the Committee voted to direct the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the SOMA under the following domestic policy directive, for release at 2:00 p.m:

"Effective July 31, 2025, the Federal Open Market Committee directs the Desk to:

Undertake open market operations as necessary to maintain the federal funds rate in a target range of 4-1/4 to 4-1/2 percent.
Conduct standing overnight repurchase agreement operations with a minimum bid rate of 4.5 percent and with an aggregate operation limit of $500 billion.
Conduct standing overnight reverse repurchase agreement operations at an offering rate of 4.25 percent and with a per-counterparty limit of $160 billion per day.
Roll over at auction the amount of principal payments from the Federal Reserve's holdings of Treasury securities maturing in each calendar month that exceeds a cap of $5 billion per month. Redeem Treasury coupon securities up to this monthly cap and Treasury bills to the extent that coupon principal payments are less than the monthly cap.
Reinvest the amount of principal payments from the Federal Reserve's holdings of agency debt and agency mortgage-backed securities (MBS) received in each calendar month that exceeds a cap of $35 billion per month into Treasury securities to roughly match the maturity composition of Treasury securities outstanding.
Allow modest deviations from stated amounts for reinvestments, if needed for operational reasons."

The vote also encompassed approval of the statement below for release at 2:00 p.m.:

"Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year. The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt, and agency mortgage-backed securities.

The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals.

The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."

Voting for this action:

Jerome H. Powell, John C. Williams, Michael S. Barr, Susan M. Collins, Lisa D. Cook, Austan D. Goolsbee, Philip N. Jefferson, Alberto G. Musalem, and Jeffrey R. Schmid.

Voting against this action: Michelle W. Bowman and Christopher J. Waller.

Absent and not voting: Adriana D. Kugler

Governors Bowman and Waller preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting. Governor Bowman preferred at this meeting to lower the target range for the federal funds rate by 25 basis points to 4 to 4-1/4 percent in light of inflation moving considerably closer to the Committee's objective, after excluding temporary effects of tariffs, a labor market near full employment but with signs of less dynamism, and slowing economic growth this year.

She also expressed her view that taking action to begin moving the policy rate at a gradual pace toward its neutral level would have proactively hedged against a further weakening in the economy and the risk of damage to the labor market.

Consistent with the Committee's decision to leave the target range for the federal funds rate unchanged, the Board of Governors of the Federal Reserve System voted unanimously to maintain the interest rate paid on reserve balances at 4.4 percent, effective July 31, 2025. The Board of Governors of the Federal Reserve System voted unanimously to approve the establishment of the primary credit rate at the existing level of 4.5 percent.

It was agreed that the next meeting of the Committee would be held on Tuesday–Wednesday, September 16–17, 2025. The meeting adjourned at 10:15 a.m. on July 30, 2025.