Federal Reserve minutes from the July 28-29 meeting, released Wednesday, show more officials leaning toward raising interest rates if inflation doesn't cool. The Federal Open Market Committee held rates steady at 3.5%-3.75% by a 9-3 vote, but three regional presidents dissented in favor of an immediate hike.
Minutes show growing appetite for tighter policy
Fed officials voted 9-3 to hold the federal funds rate in a range of 3.5%-3.75% at their July meeting, according to minutes released Wednesday. Cleveland's Beth Hammack, Dallas's Lorie Logan and Minneapolis's Neel Kashkari dissented, each favoring a quarter-point rate hike to head off a steeper tightening path later.
According to the minutes: "Many participants assessed that policy tightening would likely be necessary if inflation did not decline." Some participants added that financial conditions might not currently be restrictive enough to bring inflation back to the Fed's 2% target.
Support for tighter policy also grew compared with June. MarketWatch reported that "several" officials favored raising rates at the July meeting, up from only a "few" the previous month, with 19 officials present and 12 holding a vote.
Inflation and jobs data cloud the outlook
The Fed's preferred inflation gauge, the personal consumption expenditures price index, fell 0.1% in June while its annual rate held at 3.7%, well above the 2% target. At the same time, nonfarm payrolls fell by 23,000 in July even as unemployment dropped to 4.1%, largely because the labor force shrank.
Markets took remarks Chairman Kevin Warsh made at his post-meeting news conference as dovish on inflation, which in turn sent Treasury yields sharply higher, though yields tumbled Wednesday after the Treasury Department said it would step up purchases of longer-dated government debt. As a result, traders have pushed back their rate hike expectations. Market pricing switched to an expectation for the Fed to stay on hold likely until December before it hikes again, and MarketWatch noted that the odds of a September hike have fallen to 56%, down from 82% right after the July meeting, according to the Atlanta Fed's Market Probability Tracker.
The minutes also showed officials discussing whether to cut the FOMC's meeting schedule from eight to six per year, an idea Warsh raised as a way to let more data accumulate between decisions. No changes were made for the rest of 2026.
Sources: CNBC, MarketWatch
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