What to watch for in the next Fed minutes

Minutes from the most recent Federal Reserve meeting on interest rates come out Wednesday afternoon.

The Fed kept interest rates steady in July, but there was some disagreement among those who voted. A handful of Fed officials wanted to raise the cost of borrowing.

Tim Duy is among those watching to learn exactly how that played out. He’s chief U.S. economist at SGH Macro Advisors, and he keeps a close eye on the Fed. Duy spoke with “Marketplace Morning Report” host Kimberly Adams for more on this.

The following is an edited transcript of their conversation.

Kimberly Adams: Three Fed officials disagreed with the vote to keep interest rates where they are. How common is that kind of disagreement?

Tim Duy: It's been more common in recent years. We've had periods where we've had multiple Fed dissents before — last fall, for example. The reason it has become more common in the past year really has to do with the different kinds of stresses the economy has been under. When it's not clear what the exact course of action should be, there might be strong feelings between different participants, and that can yield more dissents.

Adams: With this particular set of minutes that are coming out, what are you looking for?

Duy: So, this is an interesting set of minutes because we know the discussion was very much concerning inflation. It had looked like inflation was rising well above the Federal Reserve's target, and there were concerns that it was not going to fall back to target very quickly. And on top of that, there was view that the labor market had stabilized, and so there was a strong feeling among some participants that the the Federal Reserve should be raising interest rates in order to contain inflationary pressures. What we're going to be looking for is how widespread those concerns were.

Adams: Since the last Fed meeting, we've gotten quite a bit of new economic data. We learned that the U.S. economy surprisingly lost 23,000 jobs in July. Also, that inflation ticked down just a bit. So, what are you expecting the Fed to actually do at its next interest rate meeting in September?

Duy: At the last [Federal Open Market Committee] meeting, there was a strong interest in raising rates to curb inflation, and then since then, the data has shifted a little bit. The job market [is] a little bit softer than anticipated. What I would point out on that part is that Fed officials have been a little bit wary about reading that. The U.S. economy has changed over the past couple of years, and it looks like the the rate of job growth that's consistent with stable unemployment has fallen quite sharply — to the point where you might see negative numbers in job growth as part of the natural variation of the the data.

On the inflation side, we've had two softer inflation prints. Fed speakers had been positioning for a rate hike on the expectation or on the concern that inflation would stay high during the summer, and it has dropped somewhat. But the Fed signaling would suggest that they are not inclined to raise rates at this next FOMC meeting.

Adams: Fed Chairman Kevin Warsh has been changing some of the ways that the Fed communicates more broadly. He wants less forward guidance. The official statements he's been reading after Fed decisions are shorter. So, what do you think his overall strategy means for what we can expect to get from the minutes moving forward?

Duy: Well, the minutes have been shortened relative to the previous ones. So, we've had the minutes of the June meeting, and that was the first that Kevin Warsh was chair [for]. And those minutes look to be shorter. Though in this case, I would say that you're still getting a lot of the same information you got for the minutes as in the past. So scaling those back, I don't think it'll reduce the information [or] content very much.