Fed Officials Mull Higher Interest Rates Amid Persistent Inflation Fears

The Federal Reserve's July meeting minutes revealed that many officials believe higher interest rates will be necessary if inflation persists. According to the minutes, Fed officials were heavily focused on the threat of stubbornly elevated inflation at the meeting, which occurred on July 28-29.

While some signs of cooling have been seen in inflation, particularly in core prices, which fell to 2.5% in July, many participants assessed that higher rates would likely be necessary if inflation did not decline. Excluding volatile food and energy categories, so-called 'core' prices have cooled, but the Fed pays more attention to a separate gauge, the personal consumption expenditures (PCE) price index.

The PCE core prices are expected to have risen 3.3% in July from a year ago, a much higher reading than CPI. New Fed chair Kevin Warsh also unnerved Wall Street investors last month by providing little guidance at a July 29 news conference on what the Fed's next steps might be.

Interest rates, or yields, on longer-term Treasury securities moved higher after the meeting. The yield on the key 10-year Treasury note touched its highest point more than a year Tuesday, topping 4.7%, before falling back Wednesday. Mortgage rates have followed the 10-year higher, lifting borrowing costs for potential buyers.