Fed minutes show majority of FOMC saw inflation as greater risk

[NEW YORK] Most US Federal Reserve officials highlighted the risk to inflation as outweighing concerns over the labour market at their meeting last month, as tariffs fuelled 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 of the Federal Open Market Committee’s (FOMC) on Jul 29 to 30 meeting.

Policymakers left interest rates unchanged in a range of 4.25 to 4.5 per cent last month, citing elevated uncertainty in their outlook as economic activity moderated during the first half of the year. Their statement at the time characterised the labour market as “solid” but said inflation remained “somewhat elevated”.

Several said that they saw the risks to their dual mandate as roughly balanced, the minutes showed, while a couple said that they were more concerned about the labour market. Though the minutes do not identify policymakers by name, governors Christopher Waller and Michelle Bowman voted against the decision, pointing to a weakening job market.

In his press conference following the meeting, chair Jerome Powell said that the inflationary impact from tariffs could well be temporary, but the central bank needed to guard against a more persistent effect.

Committee members debated whether tariffs would generate a one-time price impact or a more lasting inflation shock.

“Several participants emphasised that inflation had exceeded 2 per cent 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,” the minutes said.

Many officials also noted that it could take some time for the full effects of tariffs to be felt in consumer goods and services prices.

The minutes arrived two days before Powell will 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 supported the cautious view on inflation, but undermined confidence on 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 the levies will influence prices well into next year.

Jobs picture

But large downward revisions to payroll gains revealed weakness in the labour market in the three months to July. Hiring hit its slowest pace since the pandemic and unemployment ticked up to 4.2 per cent.

Policymakers will receive another jobs report and more inflation data before they meet again in mid-September.

The minutes also come after US President Donald 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 favour of a half-point cut by September.

The minutes showed officials held a discussion over financial stability, with several pointing to “concerns about elevated asset valuation pressures”. BLOOMBERG