Fed Policymakers' Inflation Concerns Increased At July Meeting

• Concern about inflation deepened at the Federal Reserve's (Fed’s) meeting last month, with "several" policymakers ready to raise interest rates and "many" saying a hike in borrowing costs would be ‌needed if inflation does not decline to the U.S. central bank's 2% target, the minutes of the session showed on Wednesday.
• The policymakers who favoured a rate increase at the meeting "remarked that price pressures appeared broad-based and judged that the (policy-setting) Committee should adopt a more restrictive policy stance to meet its commitment to achieving its price stability and maximum employment goals on a sustained basis." Failure to do so, they argued, would risk a steeper and potentially more costly sequence of tightening moves at a later stage.
• The Fed voted at that meeting to hold its benchmark interest rate ⁠in the current 3.50%-3.75% range, but with three policymakers dissenting in favour of a quarter-percentage point hike. A larger group of "many" participants "assessed that policy tightening would likely be necessary if inflation did not decline," the minutes said. The minutes, covering Fed Chairman Kevin Warsh's second meeting as head of the central bank, showed central bankers already delving into some of the broader issues he wants to pursue as part of a possible overhaul of how the Fed operates.
• Warsh also asked for input from the Committee on whether it would be better for the Fed to hold only six meetings a year rather than the current eight, allowing for two full months of data ⁠to accumulate each time. No decisions were made regarding this issue, and the 2026 schedule of meetings would not be altered.
• The minutes drew little reaction in financial markets. An announcement earlier on Wednesday that the Treasury would double its buyback of longer-term U.S. government debt had eased upward pressure on yields, and there was no mention of support for a rate cut. This represents how the Fed's policy debate has shifted over the course of a year that began with an expectation that the central bank would be able to lower borrowing costs this year as inflation slowed.
• Price pressures, ⁠however, have continued to build, particularly after the Trump administration joined Israel in a war with Iran. Shipments of oil and gas through the strategic Strait of Hormuz continue to be constrained almost six months after the start of the conflict.
• The Fed is expected to hold its policy rate steady again at its September 15-16 ⁠meeting after recent data showed inflation easing slightly and firms unexpectedly shedding jobs in July. The data has left officials still divided over whether rate hikes will be needed to slow inflation further, but also more cautious about the strength of the labour market and the risks to their goal of maintaining full employment.

(Source: Reuters)