Additional Coverage:
- Fed minutes show tariff inflation fears outweighed jobs market in July rate decision (foxbusiness.com)
Fed Minutes Reveal Inflation Concerns Outweighed Labor Market Worries in July
Minutes from the Federal Reserve’s July meeting reveal that policymakers were more focused on inflation risks stemming from tariffs than on the labor market when considering interest rate policy.
The Federal Open Market Committee (FOMC) voted 9-2 to hold steady the federal funds rate at 4.25% to 4.5% for the fifth consecutive meeting. This decision came despite two dissenting votes in favor of a rate cut—the first dual dissent since 1993—from Governors Michelle Bowman and Christopher Waller, who cited labor market risks.
The minutes highlight a division within the committee: “Participants generally pointed to risks to both sides of the Committee’s dual mandate, emphasizing upside risk to inflation and downside risk to employment.” While a majority prioritized the inflation risk, several members saw both risks as balanced, and a few considered the employment risk more significant.
Many participants noted that inflation remained above the Fed’s 2% target. They acknowledged recent increases in goods price inflation, while services price inflation continued to slow. Some suggested that tariffs were masking the underlying inflation trend, which, excluding tariff effects, was nearing the target.
The committee also discussed the inflation outlook, with most anticipating a near-term rise, although considerable uncertainty remained about the impact of increased tariffs. They noted that several factors, including inventory stockpiling, slow pass-through of input costs, and ongoing trade negotiations, could delay the effect of tariffs on consumer prices.
The July meeting predated the weaker-than-expected jobs report showing only 73,000 jobs added, significantly below estimates. This report, along with upcoming inflation and labor market data, will likely influence the Fed’s decision on a potential rate cut at its September meeting.
Eric Teal, chief investment officer for Comerica Wealth Management, emphasized the Fed’s focus on inflation, particularly the risk posed by tariffs. He noted the increased effective tariff rate on imports and the uncertainty surrounding the labor market.
Ryan Sweet, chief U.S. economist for Oxford Economics, highlighted the differing views within the FOMC regarding the balance of risks between inflation and employment. He questioned whether the July jobs report might shift some perspectives before the September meeting.