Fed holds rates steady amid tariff inflation risk

Minutes from the Federal Reserve's July policy meeting show policymakers prioritized tariff driven inflation risks over labor market concerns while keeping rates unchanged.

Fed holds rates steady amid tariff inflation risk

Minutes from the July Federal Open Market Committee meeting show policymakers kept the federal funds rate at 4.25% to 4.50% in a 9-2 vote, marking a fifth straight hold. The dissenters, Governors Michelle Bowman and Christopher Waller, urged a 25 basis point cut on concerns about the labor market. The minutes also frame tariff driven inflation as a key risk that could outweigh near term labor market strength.

Officials noted that inflation remains above the 2% target, with several participants saying tariff effects could mask the underlying trend. They cited delays in tariff pass through to prices and factors such as inventory stockpiling and ongoing trade negotiations. The July jobs report showed just 73,000 new positions, adding uncertainty about the timing of any rate move. The September 16-17 FOMC meeting will weigh fresh data as it considers the path ahead.

The minutes reveal a cautious stance that prioritizes price stability over immediate labor market relief. By foregrounding tariff effects, policymakers tie monetary policy to a broader political and economic debate about trade policy and how it influences prices.

That stance carries risks. If tariff impacts prove stickier or bite consumer prices more than expected, credibility could hinge on a timely response. If data worsen for labor, the committee may face renewed calls to ease. Either way, the policy path will depend on incoming inflation signals and ongoing trade developments, including Powell's looming Jackson Hole moment.

Highlights

The policy path remains uncertain as new data arrive