Most Fed Officials Saw Inflation Risks Outweighing Employment Concerns, July Meeting Minutes Show

03:37 PM EDT, 08/20/2025 (MT Newswires) -- Most of Federal Reserve officials saw potential inflation pressures outweighing risks to the labor market, while policymakers indicated that it would take time to gain more clarity on the exact impact of tariffs on prices, minutes of the central bank's July 29-30 meeting showed Wednesday.

At the meeting, the Federal Open Market Committee left its benchmark lending rate unchanged at 4.25% to 4.50% for a fifth straight time, though governors Christopher Waller and Michelle Bowman preferred a quarter-percentage-point cut.

"Participants generally pointed to risks to both sides of the committee's dual mandate, emphasizing upside risk to inflation and downside risk to employment," the meeting minutes showed Wednesday. "A majority of participants judged the upside risk to inflation as the greater of these two risks, while several participants viewed the two risks as roughly balanced, and a couple of participants considered downside risk to employment the more salient risk."

At the start of this month, Bowman and Waller said the FOMC should ease its monetary policy to avoid a potential deterioration in the labor market.

Meeting members indicated that although the effects of higher tariffs had become "more apparent" in the prices of certain goods, their overall effects had yet to be seen, the minutes showed Wednesday. "They also noted that it would take time to have more clarity on the magnitude and persistence of higher tariffs' effects on inflation."

US President Donald Trump recently signed an executive order to extend the tariff suspension on China for another 90 days after the White House issued a list of new reciprocal tariff rates on different countries. Washington has already finalized trade deals with several trading partners, including the European Union and Japan.

Data released earlier this month showed that US consumer inflation slowed down in July sequentially, with analysts saying that businesses were yet to fully pass through tariff-related costs to consumers. The US economy added fewer jobs than projected last month, while gains in the previous two months were revised sharply lower.

"Participants noted that the committee might face difficult tradeoffs if elevated inflation proved to be more persistent while the outlook for the labor market weakened," according to the minutes released Wednesday. "Participants agreed that, if that situation were to occur, they would consider each variable's distance from the committee's goal and the potentially different time horizons over which those respective gaps would be anticipated to close."

The odds of a 25-basis-point reduction in interest rates in September fell to about 81% on Wednesday from 87% on Tuesday, according to the CME FedWatch tool. The probability of another pause rose to 19% from 13%.

Although the July meeting minutes are "dated," they showed the effect of tariffs was becoming more apparent, Oxford Economics said in remarks e-mailed to MT Newswires. "The (Fed) knows that more is in the pipeline, which will offset some of the disinflation from services inflation," Oxford Chief US Economist Ryan Sweet wrote. "The labor market will be the swing factor on whether the Fed cuts interest rates in September or not."

Fed Chair Jerome Powell is scheduled to speak in Jackson Hole, Wyoming, on Friday. Trump has repeatedly criticized Powell and called on the Fed to cut interest rates.

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