A grocery store in Federal Way, Washington. Photographer: David Ryder/Getty Images.
Most Federal Reserve officials highlighted inflation risks as outweighing concerns over the labor market at their meeting last month, as tariffs fueled a growing divide within the central bank’s rate-setting committee. Officials acknowledged worries over higher inflation and weaker employment, but a majority of the 18 policymakers in attendance “judged the upside risk to inflation as the greater of these two risks,” according to the minutes from the Federal Open Market Committee’s (FOMC’s) meeting on July 29 and 30.
Policymakers left interest rates unchanged in a range of 4.25 percent to 4.5 percent last month, citing elevated uncertainty in their outlook as economic activity moderated during the first half of the year. Their statement at the time characterized the labor market as “solid” but said inflation remained “somewhat elevated.” In his press conference following the meeting, Chair Jerome Powell said the inflationary impact from tariffs could well be temporary, but that the central bank needed to guard against a more persistent effect.
The minutes show that several FOMC members saw the risks to their dual mandate as roughly balanced, while a couple were more concerned about the labor market. Though the minutes don’t identify policymakers by name, Governors Christopher Waller and Michelle Bowman voted against the decision to hold rates steady, pointing to a weakening job market.
Committee members debated whether tariffs would generate a one-time price impact or a more lasting inflation shock. “Several participants emphasized that inflation had exceeded 2 percent for an extended period and that this experience increased the risk of longer-term inflation expectations becoming unanchored in the event of drawn-out effects of higher tariffs on inflation,” according to the minutes. Many officials also noted that it could take some time for the full effects of tariffs to be felt in the prices of consumer goods and services.
The minutes arrived two days before Powell is scheduled to deliver a closely-watched speech in Jackson Hole, Wyoming, a stage he has previously used to steer investor expectations on interest rates.
Recent economic data has simultaneously supported the cautious view on inflation and undermined confidence in employment. The biggest spike in wholesale inflation in three years provided the latest sign that companies have begun to raise prices to offset rising input costs. Some Fed officials have voiced concerns that new tariffs will influence prices well into next year. But large downward revisions to payroll numbers revealed weakness in the labor market in the three months through July. Hiring hit its slowest pace since the pandemic, and unemployment ticked up to 4.2 percent.
Policymakers will receive another jobs report and more inflation data before they meet again in mid-September.
The minutes also come after President Trump called for the resignation of Fed Governor Lisa Cook after an administration official accused her of mortgage fraud. Trump has repeatedly called for the Fed to lower interest rates, echoed by his top officials and a growing list of candidates in consideration to succeed Powell when his term as chair ends in May. Treasury Secretary Scott Bessent argued last week in favor of a half-point cut by September.
The minutes show that officials held a discussion over financial stability, with several pointing to “concerns about elevated asset valuation pressures.”
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