Fed policymakers’ inflation concerns increased at July meeting, minutes show

Concern about inflation intensified during the Federal Reserve's meeting in July, according to minutes released on Wednesday. Several policymakers were prepared to raise interest rates, and many believed a hike in borrowing costs would be necessary if inflation did not fall to the central bank's 2% target, the minutes indicated.

Those favoring a rate increase noted that price pressures seemed widespread and argued the Committee should adopt a more restrictive policy stance to meet its commitment to price stability and full employment. The Fed chose to keep its benchmark interest rate within the 3.50%-3.75% range at that meeting, but three dissenting voices pushed for a quarter-point increase.

The minutes revealed that the central bankers were already contemplating broader issues Warsh aimed to address in a potential Fed overhaul. Participants saw the upcoming review of how the Fed manages its balance sheet as a chance for a comprehensive discussion, although many reaffirmed the primary tool for adjusting monetary policy should be changes to the federal funds rate target.

Warsh also sought input on whether the Fed should hold fewer meetings annually, but no decisions were made on the matter. The minutes did not reflect any support for a rate cut, signaling a shift in the Fed's policy debate from a year ago, when expectations were that the central bank would lower borrowing costs as inflation subsided.

However, price pressures have persisted, especially after the U.S. entered a conflict with Iran, disrupting oil and gas shipments through the Strait of Hormuz. The Fed is anticipated to keep its policy rate unchanged at the September 15-16 meeting as recent data showed a slight easing of inflation and unexpected job losses in July.

While officials remain divided on whether rate hikes are needed to curb inflation further, they are also more cautious about the strength of the labor market and the risks to their goal of maintaining full employment.