Fed Officials Signal Higher Rates Ahead If Inflation Persists

Minutes from the Federal Reserve's July meeting revealed that many officials believe higher interest rates will be necessary if inflation doesn't subside. The Fed voted 9-3 to keep its key rate unchanged at around 3.6% on July 28-29, but some policymakers worried about stubbornly elevated prices.

The minutes showed that even after excluding food and energy price increases, underlying inflation appeared to be high. Some officials pointed out that core prices have cooled in the past month, with annual core inflation falling to 2.5% in July, according to the consumer price index (CPI). However, the Fed pays more attention to a separate gauge, the personal consumption expenditures (PCE) price index, which is running hotter than CPI.

New Fed chair Kevin Warsh has been criticized for providing little guidance on the central bank's next steps at a July 29 news conference. This lack of clarity may have contributed to higher interest rates and borrowing costs for potential buyers. The yield on the key 10-year Treasury note touched its highest point in over a year, topping 4.7%, before falling back.