Fed Officials Weigh Higher Rates Amid Persistent Inflation Fears

The Federal Reserve may need to raise interest rates if inflation persists, according to many officials who attended its July meeting. The minutes of that meeting, released this week, showed that some Fed policymakers believe higher rates would be necessary if prices don't decrease.

At the time, officials were concerned about the impact of tariffs and energy price increases on inflation. They worried that these factors could keep prices high for a while longer. Even after excluding food and energy costs, underlying inflation appeared to be elevated, according to some Fed officials.

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. This measure is running hotter than the CPI, with core PCE prices expected to have risen 3.3% in July from a year ago.

New Fed chair Kevin Warsh has provided little guidance on what the central bank's next steps might be, which has unnerved Wall Street investors. He has said he will provide less 'forward guidance' about the Fed's plans, as he sees this as limiting the central bank's policy options even if economic circumstances change.