Fed Officials Eye Higher Rates as Persistent Inflation Fears Grow

Several Federal Reserve officials believe that higher interest rates may be necessary to combat persistent inflation, according to minutes from their July meeting. The Fed's key short-term interest rate was kept unchanged at about 3.6% with a 9-3 vote.

The minutes show that many officials were concerned about the threat of stubbornly elevated inflation, citing factors such as tariffs and investment in AI infrastructure driving up prices. Some Fed officials pointed out that even after excluding volatile food and energy categories, underlying inflation appeared to be high.

While core prices have cooled slightly, with annual core inflation falling to 2.5% in July, the Fed pays more attention to a separate gauge, the personal consumption expenditures (PCE) price index, which is running hotter at 3.3%. This has led some officials to worry that inflation might be persistently elevated.