Fed Minutes Show Rate-Hike Pressure Was Broader Than 9-3 Vote
By Jacqueline Policastro | Quincy News Correspondent
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Washington (Quincy News) — Federal Reserve officials voted 9-3 to hold interest rates steady last month, though minutes released Wednesday showed many policymakers believed further rate increases would likely be necessary if inflation did not decline.
Minutes from the Federal Open Market Committee’s July 28-29 meeting show “several” participants favored an immediate quarter-point rate increase, while a larger group, described as “many” participants, believed additional tightening would likely be necessary if inflation failed to decline. Some also questioned whether financial conditions were restrictive enough to return inflation to the Fed’s 2% target.
The Fed ultimately voted to maintain its benchmark federal funds rate at 3.5% to 3.75%. Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan cast the three dissenting votes in favor of a quarter-point increase.
The minutes do not establish that more than three voting members wanted an immediate increase because the Fed uses the term “participants” to include voting and nonvoting policymakers. But they make clear that concern about persistent inflation extended considerably beyond the three dissents.
David Mitchell, professor of economics and director of the Bureau of Economic Research at Missouri State University, told Quincy News the Fed’s credibility on inflation remains a key consideration.
“I think the bigger issue for the Fed is their credibility on inflation than whether there is going to be a mild recession going forward if rates go up,” Mitchell said.
Inflation Dominated the Debate
At the July meeting, most Fed officials still expected inflation to ease during the remainder of the year as the effects of tariffs and earlier energy-price increases faded. But many warned it could prove more persistent.
Officials pointed to continued Middle East turmoil and supply-chain disruptions, and many worried that after several years of inflation above the Fed’s target, persistently higher prices could begin influencing inflation expectations and decisions about wages and prices.
Fed staff saw risks pulling policymakers in opposite directions. Risks to employment and economic growth were viewed as tilted to the downside, while risks to inflation were skewed to the upside.
“My prediction for the next meeting: You will continue to see a larger number say we have to do something with inflation, despite the fact that it looks like the economy is slowing down,” Mitchell said.
The Data Have Changed Since July
The complication for the Fed is that Wednesday’s minutes describe the economy as it looked three weeks ago.
Since then, employers shed 23,000 jobs in July while the unemployment rate held near 4.1%, according to the Bureau of Labor Statistics.
Inflation has also shown some improvement. Consumer prices increased 0.1% in July and 3.4% from a year earlier. Core inflation, excluding food and energy, rose 2.5% over the year, down from 2.6% in June.
Those reports added evidence of a softer labor market and easing inflation ahead of the September meeting.
Markets are pricing in the Fed holding rates steady in September as the most likely outcome, according to CME FedWatch.
Mitchell said he expects the three July dissenters to remain in the rate-hike camp and believes they could potentially be joined by another policymaker, though he expects the majority of the committee may again choose to wait for additional data.
Notably, the minutes showed no indication of a faction advocating for interest-rate cuts, despite expectations earlier in the year that easing inflation could open the door to lower rates in 2026.
Warsh Floats Fewer Fed Meetings
The minutes also show that Fed Chair Kevin Warsh asked policymakers to consider reducing the number of scheduled FOMC meetings from eight per year to six, arguing that meeting roughly every two months could allow more economic information to accumulate between decisions and give officials more time to consider longer-term monetary policy questions.
No decision was made, and any change would not affect the remainder of the 2026 calendar. The proposal comes as Warsh seeks to reduce the Fed’s forward guidance and provide fewer signals about future policy moves.
Mitchell said there is an argument for allowing markets to interpret economic conditions without the Fed showing all of its cards, but said less communication carries a cost.
Warsh’s approach, he said, “adds to a whole lot more volatility” and risks creating “a man-behind-the-curtain mystique to the Fed.”
“I think people are probably better off with more information than less,” Mitchell said, “but I also can see the argument where you don’t want to show all your cards at the same time.”
The Fed’s next policy meeting is scheduled for Sept. 15-16.
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