The Federal Reserve's July policy meeting ended with a 9‑3 vote to keep the federal funds rate unchanged at 3.5%‑3.75%. Dallas, Cleveland and Minneapolis Fed presidents opposed the hold and wanted a 0.25 percentage point rise.
Two other regional presidents—Kansas City’s Jeff Schmid and St. Louis chief Alberto Musalem—later said they would have supported an increase, even though they did not vote in July.
The debate focused on inflation. Most members expected prices to fall later this year as the impact of tariffs and earlier energy price spikes faded, but they also warned that inflation could stay higher than desired.
The minutes show that nearly half of the 19 policymakers view the inflation outlook as “highly uncertain,” and the renewed tensions in Iran add further doubt.
Officials described the labor market as stable, with demand and supply roughly equal, and said growth remained solid, backed by strong investment and productivity.
Fed Chair Kevin Warsh faced criticism for his post‑meeting remarks, where he did not explain why rates were kept steady and avoided saying the committee might raise them soon. He also suggested the inflation target could be changed in January.
Market reaction was swift. Longer‑dated bond yields climbed to near two‑decade highs, hinting at weaker confidence in the Fed’s 2% target, while the spread to inflation‑protected Treasuries widened only slightly.
Recent data point to a slowdown. July retail sales fell the most in over a year, core inflation eased, and employers cut jobs unexpectedly, indicating a weaker labor market than before.
As a result, traders cut their expectations for rate hikes. Futures implied a 36% chance of a September increase after peaking at 70% in late July.
Warsh also floated the idea of cutting the committee’s annual meetings from eight to six, arguing that less frequent meetings would allow more time for analysis. The proposal will not take effect this year.
The minutes were released a week before the Fed’s annual Jackson Hole gathering, where Warsh will speak for the first time since taking office in May.