Most US Federal Reserve officials highlighted the risk to inflation as outweighing concerns over the labor market at their meeting last month, as tariffs fueled a growing divide within the central bank’s rate-setting committee.
Officials acknowledged worries over higher inflation and weaker employment, but a majority of the 18 policymakers in attendance “judged the upside risk to inflation as the greater of these two risks,” according to the minutes of the Federal Open Market Committee’s (FOMC) July 29-30 meeting.
Policymakers left interest rates unchanged in a range of 4.25 to 4.5 percent last month, citing elevated uncertainty in their outlook as economic activity moderated during the first half of the year.
Photo: Reuters
Their statement at the time characterized the labor market as “solid,” but said inflation remained “somewhat elevated.”
Several said that they saw the risks to their dual mandate as roughly balanced, the minutes showed, while a couple said they were more concerned about the labor market. Though the minutes do not identify policymakers by name, Governors Christopher Waller and Michelle Bowman voted against the decision, pointing to a weakening job market.
Committee members debated whether tariffs would generate a one-time price impact or a more lasting inflation shock.
“Several participants emphasized that inflation had exceeded 2 percent for an extended period and that this experience increased the risk of longer-term inflation expectations becoming unanchored in the event of drawn-out effects of higher tariffs on inflation,” the minutes said.
Many officials also said that it could take some time for the full effects of tariffs to be felt in consumer goods and services prices.
Recent economic data has supported the cautious view on inflation, but undermined confidence on employment.
The biggest spike in wholesale inflation in three years provided the latest sign that US companies have begun to raise prices to offset rising input costs.
However, large downward revisions to payroll gains revealed weakness in the US labor market in the three months through last month. Hiring hit its slowest pace since the COIVD-19 pandemic and unemployment ticked up to 4.2 percent.
Policymakers are to receive another jobs report and more inflation data before they meet next month.
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