Fed Officials Divided on Rate Hike, Warn of Persistent Inflation

Minutes from the Federal Reserve's July meeting show that officials were divided on whether to raise interest rates, but many believed tightening policy would be necessary if inflation didn't decline.

The FOMC voted 9-3 in July to keep the federal funds rate at 3.5% to 3.75%. Dallas Fed President Lorie Logan and two other regional presidents, Kansas City's Jeff Schmid and St. Louis chief Alberto Musalem, dissented in favor of raising rates by a quarter percentage point.

According to the minutes, most participants anticipated that inflation would step down over the rest of the year as the effects of tariffs and earlier energy price increases wane, but many noted the possibility that inflation might be more persistently elevated. The labor market was described as stable, with labor demand and supply in balance.

Since the July policy decision, new data has pointed to a recent slowing in economic activity, which would take pressure off the Fed to increase rates. Retail sales fell in July by the most in over a year, and core inflation for July was subdued. Employers unexpectedly cut jobs in July, and hiring in the prior two months was revised lower.

Fed Chairman Kevin Warsh suggested reducing the committee's annual number of policy meetings from eight to six, but this idea is not expected to be implemented this year.