Federal Reserve officials hint rate increase may be necessary

Multiple Federal Reserve officials indicated the central bank may need to raise interest rates later this year, according to newly released minutes of the Fed’s July meeting. 

While most participants at the joint meeting of the Federal Open Market Committee (FOMC) and the Fed’s Board of Governors “anticipated that inflation would step down over the rest of the year,” many participants still “noted the possibility that inflation might be more persistently elevated,” according to the meeting’s minutes.

Participants noted that elevated energy prices due to the Iran war and the pass-through effects of President Trump’s tariffs have kept inflation above the Fed’s 2 percent target rate.

At the conclusion of the meeting, the FOMC voted 9-3 to keep interest rates steady, at a range of 3.5 percent to 3.75 percent. It marked the fifth straight meeting at which the panel held rates. 

Lorie Logan, Beth Hammack and Neel Kashkari — presidents of the Dallas, Cleveland and Minneapolis Federal Reserve Banks, respectively — dissented; all three voted to raise rates by 0.25 percentage points. 

During the July meeting, many participants “assessed that policy tightening would likely be necessary if inflation did not decline,” according to the minutes. 

Annual inflation last month was 3.4 percent, as measured by the consumer price index. The Fed’s preferred measure of inflation is the personal consumption expenditures index (PCE), which the U.S. Bureau of Economic Analysis will release for July next Wednesday.

Annual inflation in June, as measured by the PCE, was 3.7 percent, above the Fed’s target rate of 2 percent. After the FOMC held rates steady last month, Fed Chair Kevin Warsh reiterated his goal of delivering price stability. 

“There is no soft inflation target, there is no soft implicit target, not on this committee’s watch. There’s only a target, and it’s 2 percent,” Warsh told reporters. 

The FOMC will next meet Sept. 15-16. That will mark the rate-setting panel’s third-to-last meeting of the year.

In the FOMC’s quarterly Summary of Economic Projections it released in June, nine of 19 committee officials predicted at least one rate hike this year.

But Trump on Wednesday doubled down on his view that the FOMC should cut rates, which he called “artificially” high.

“They raise them for no reason, and you can’t go out to the market when you have a Fed that’s raising interest rates,” the president told reporters during a meeting with cryptocurrency executives at the White House.

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