Federal Reserve — FOMC Statement (USA, 2025)

FOMC Minutes of the Federal Open Market Committee July 29 30, 2025 F E D E R A L R E S E R V E S Y S T E M 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.1 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 in the near future. Developments in Financial Markets and Open Market Operations The manager turned first to a review of financial market developments. Over the intermeeting period, the expected path of the policy rate and longer-term Treasury yields were little changed, 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. Against this backdrop, the manager reported that the Open Market Desk s Survey of Market Expectations (Desk survey) indicated that the median respondent s expectations regarding both real gross domestic product (GDP) growth and inflation were roughly unchanged. 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 1 The Federal Open Market Committee is referenced as the  FOMC  and the  Committee  in these minutes; the Board of Governors of the Federal Reserve System is referenced as the  Board  in these minutes. 2 July 29 30, 2025 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 discussed developments in Treasury securities markets and market-based measures of inflation compensation. Nominal Treasury yields were little changed, on net, over the intermeeting period, consistent with the lack of appreciable changes in the macroeconomic outlook and in policy rate expectations. Perceived risks associated with trade policy developments contributed to an increase in near-term market measures of inflation compensation, while longer-horizon measures of inflation compensation rose more modestly. 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. Regarding foreign exchange developments, the manager noted that the broad trade-weighted dollar index had continued to depreciate since the previous FOMC meeting but at a slower pace than in recent intermeeting periods. At the same time, the manager noted that correlations between the dollar and its fundamental drivers had normalized recently. The available data continued to suggest relative stability in foreign holdings of U.S. assets. The manager turned next to money markets. Unsecured overnight rates remained stable over the intermeeting period. Rates on Treasury repurchase agreements (repo) were somewhat higher than the low levels seen in the previous intermeeting period. 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 Minutes of the Federal Open Market Committee 3 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. Disinflation appeared to have stalled, with tariffs putting upward pressure on goods price inflation. Total consumer price inflation as measured by the 12-month change in the price index for personal consumption expenditures (PCE) was estimated to have been 2.5 percent in June, based on the consumer and producer price indexes. Core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was estimated to have been 2.7 percent in June. Both inflation rates were similar to their year-earlier levels. Recent data indicated that labor market conditions remained solid. The unemployment rate was 4.1 percent in June, down 0.1 percentage point from May. The participation rate edged down 0.1 percentage point in June, and the employment-to-population ratio was unchanged. Total nonfarm payroll gains were solid in June, though the pace of private payroll gains stepped down noticeably. The ratio of job vacancies to unemployed workers was 1.1 in June and remained within the narrow range seen over the past year. Average hourly earnings for all employees rose 3.7 percent over the 12 months ending in June, slightly lower than the year-earlier pace. According to the advance estimate, real GDP rose in the second quarter after declining in the first quarter. Growth of real private domestic final purchases which comprises PCE and private fixed investment and which often provides a better signal than GDP of underlying economic momentum  slowed in the second quarter, as a step-down in investment growth offset faster PCE growth. 4 July 29 30, 2025 After exerting a substantial negative drag on GDP growth in the first quarter, net exports made a large positive contribution in the second quarter. Real imports of goods and services declined sharply, likely reflecting the aftereffects of the substantial front-loading of imports recorded in the first quarter ahead of anticipated tariff hikes. By contrast, exports of goods declined at a more moderate pace, and exports of services rose further. Abroad, activity indicators pointed to a slowdown of foreign economic growth in the second quarter, as the transitory boost due to the front-loading of U.S. imports earlier in the year faded. Of note, monthly GDP data through May indicated that economic activity contracted in Canada. China s GDP, however, continued to expand at a moderate pace in the second quarter, supported by solid domestic spending. Headline inflation rates were near targets in most foreign economies, held down by past declines in oil prices and fading wage pressures following a tightening in monetary policy s