Fed Officials Warn of Rate Hikes if Inflation Doesn't Cool

Federal Reserve officials have signaled that they will need to raise interest rates unless inflation cools over the next few months. The central bank's minutes from July's meeting showed that many participants assessed that policy tightening would be necessary if inflation did not decline.

In fact, some participants even commented that financial conditions might not currently be sufficiently restrictive to facilitate a return of inflation to 2 percent. This suggests that the Fed may need to take more aggressive action to bring down prices and get inflation back under control.

Three members of the Federal Open Market Committee voted to increase rates in July, while the remaining nine voted to maintain rates in the 3.5%-3.75% range. Cleveland Federal Reserve president Beth Hammack was among those who supported increasing rates, saying that 'one 25 basis point move probably doesn't do a whole lot for the economy' and that more than one interest rate hike could be needed.

However, with recent softer inflation data combined with signs of a cooling labor market, the case for raising interest rates at the Fed's September meeting has weakened. As a result, bets about the Fed's next move were largely unchanged after the minutes, with a 65.4% chance of a rate hold and 34.6% chance of a rate hike.