Fed minutes show officials divided, worried about tariffs, inflation, labor market

ISTANBUL

The minutes of the last meeting of the US Federal Reserve that were revealed Wednesday showed that officials were worried about the state of the economy, inflation and the labor market, even though the majority agreed that it was too soon to cut the policy rate.

“Participants generally pointed to risks to both sides of the Committee’s dual mandate, emphasizing upside risk to inflation and downside risk to employment,” according to the minutes.

While “a majority of participants judged the upside risk to inflation as the greater of these two risks,” a couple saw “downside risk to employment the more salient risk.”

Governors Christopher Waller and Michelle Bowman voted against the decision to hold the policy rate unchanged in the last meeting, stating that the Fed should start lowering the rate. The fed funds rate has been between the 4.25% and 4.5% range since December 2024.

It was the first time that more than one governor voted against a majority interest rate decision in more than 30 years.

President Donald Trump’s tariff policy and its effects on inflation and the labor market were a central part of the discussion.

“Regarding upside risks to inflation, participants pointed to the uncertain effects of tariffs and the possibility of inflation expectations becoming unanchored,” said the minutes.

It also stated “considerable uncertainty remained about the timing, magnitude, and persistence of the effects of this year’s increase in tariffs.”

While some were concerned that the employment picture was beginning to show cracks and would require a policy boost to avert more harm, others were unsure of how tariffs would affect inflation.

The Fed’s meeting took place two days before the Bureau of Labor Statistics released data indicating that nonfarm payroll growth was far slower in June and May than initially estimated, in addition to remaining sluggish in July.

Fed officials stated that the “downside risk to employment had meaningfully increased with the slowing of the growth of economic activity and consumer spending, and that some incoming data pointed to a weakening of labor market conditions,” even before the release of the downbeat employment data.

The minutes were released ahead of Fed Chair Jerome Powell’s expected keynote speech Friday at the central bank’s annual symposium at Jackson Hole, Wyoming.

Relations between Powell and Trump have soured in recent months, as the US president has repeatedly demanded the Fed cut interest rates, citing moves by European central banks and warned that delays could stall the US economy.

Former Governor Adriene Kugler resigned earlier this month, allowing Trump to name another nominee to fill the position. Also Wednesday, the president demanded that Governor Lisa Cook resign following mortgage fraud allegations.

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