Fed Officials Worry About Stubborn Inflation and Higher Rates

Federal Reserve officials are increasingly concerned about inflation and its potential impact on interest rates. According to minutes from the July 28-29 meeting, many Fed officials think higher rates will be needed if inflation stays high.

The minutes show that participants judged their inflation outlooks as highly uncertain and skewed to the upside, with some officials pointing out that even after excluding volatile food and energy categories, underlying inflation appeared elevated.

Core prices have cooled in recent months, but the Fed pays more attention to a separate gauge, the personal consumption expenditures (PCE) price index, which is running hotter than the CPI. Core PCE prices are expected to have risen 3.3% in July from a year ago, a much higher reading than CPI.

Some officials noted that inflation might be more persistently elevated, and many participants anticipated that it would step down over the rest of the year as the effects of tariffs and earlier energy price increases wane.