Fed minutes: Most officials worried about inflation moving higher

Key Points

• Most Federal Reserve officials are more concerned about rising inflation than potential job losses, leading them to keep interest rates unchanged.
• The Fed's interest-rate setting committee noted that the effects of tariffs on inflation and economic activity are still unclear.
• Despite inflation creeping up recently, the overall rise has been less significant than initially feared, prompting the Fed to maintain its current policy.
• Fed Chair Jerome Powell indicated it may take significant time to assess the impact of President Trump's tariffs on inflation before making further rate changes.

WASHINGTON (AP) — Most Federal Reserve officials said last month that the threat of higher inflation was a greater concern than the potential for job losses, leading the central bank to keep its key rate unchanged.

According to the minutes of the July 29-30 meeting, released Wednesday, members of the Fed's interest-rate setting committee “assessed that the effects of higher tariffs had become more apparent in the prices of some goods but that their overall effects on economic activity and inflation remained to be seen.”

The minutes underscored the reluctance among the majority of the Fed's 19 policymakers to reduce the central bank's short-term interest rate until they get a clearer sense of the impact of President Donald Trump's sweeping tariffs on inflation. So far inflation has crept up in the past couple of months but hasn't risen as much as many economists feared when Trump unveiled some of his duties.

The policymakers appeared to spend a substantial amount of time discussing the tariffs, and they said they expected inflation to increase in the coming months as a result. But they also "judged that considerable uncertainty remained about the timing, magnitude, and persistence of the effects of this year’s increase in tariffs.”

Last month's meeting occurred two days before the government issued a disappointing jobs report for July, which showed that hiring was weak last month and far fewer jobs were added in May and June than originally estimated. Wall Street investors increased their bets that the Fed would cut rates at its next meeting Sept. 16-17 after that report was released, according to futures pricing.

The Fed left its key interest rate unchanged last month at about 4.3%, though two members of its governing board dissented in favor of a rate cut. Both dissenters — Christopher Waller and Michelle Bowman — were appointed to the board during Trump's first term.

At a news conference after the meeting, Chair Jerome Powell signaled that it might take significant additional time for the Fed to determine whether Trump's sweeping tariffs are boosting inflation.

Powell will speak for the first time after the disappointing jobs report on Friday, at the Fed's annual economic symposium in Jackson, Wyoming. Economists generally expect he may signal that the Fed is likely to reduce rates this year without committing to a reduction in September.

Earlier Wednesday, Trump urged Fed governor Lisa Cook, an appointee of former president Joe Biden, to resign after an administration official accused Cook of committing mortgage fraud. It represented another effort by the Trump administration to gain control over the Fed, a traditionally independent institution that has been targeted by the White House because of its reluctance to cut its key rate, which Trump has repeatedly demanded.

When the Fed changes its rate, it often — though not always — affects borrowing costs for mortgages, auto loans, and credit cards.

The Fed typically keeps its rate high, or raises it, to cool borrowing and spending and combat inflation. It often cuts its rate to bolster the economy and hiring when growth is cooling.

According to the minutes, a few Fed officials at last month's meeting “observed that evidence so far suggested that foreign exporters were paying at most a modest part of the increased tariffs, implying that domestic businesses and consumers were predominantly bearing the tariff costs.”

And several policymakers “expected that many companies would increasingly have to pass through tariff costs to end-customers over time.”

Still, a few officials also insisted that the tariffs would likely lead to a one-time increase in prices, rather than an ongoing bout of inflation. Waller and Bowman have expressed that view and argued that as a result, the Fed should cut rates because inflation — excluding the tariffs — is cooling.