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Some US rate-setters are backing away from the Federal Reserve’s reluctance to cut borrowing costs even though many were still worried that Donald Trump’s tariffs will worsen inflation, minutes from the central bank’s July meeting showed.
An account of the Fed’s July 29-30 policy deliberations showed that, while some rate-setters still wanted to see how economic data develops in the coming months, others thought they may need to make a call on whether or not to lower borrowing costs sooner than that.
The central bank has kept its benchmark federal funds target range on hold at 4.25-4.5 per cent this year, amid concerns that tariffs imposed by the White House on US imports could stoke another wave of inflation.
The minutes of the rate-setting Federal Open Market Committee, published on Wednesday, showed that “some [members] noted that it would not be feasible or appropriate to wait for complete clarity on the tariffs’ effects on inflation before adjusting the stance of monetary policy”.
Still, the minutes noted that “a majority of participants judged the upside risk to inflation” were larger than those posed by a potential slowdown in the labour market.
The minutes said that “a few” FOMC members thought tariffs were likely to “lead only to a one-time increase in the price level” rather than a more persistent increase in inflation.
The meeting came before the July jobs report, which showed a sharp slowdown in hiring during the summer, and separate data pointing to a sharp rise in producer prices.
The July meeting saw the vote split for the first time this year, with Fed governors Christopher Waller and Michelle Bowman backing a 0.25 percentage point cut. Their dissent marked the first time two governors had disagreed with the Fed chair since 1993.
Waller and Bowman have appeared on a Treasury longlist to succeed chair Jay Powell when his term expires in May 2026.
Markets are broadly expecting a quarter-point cut in interest rates at the September vote, with those expectations rising after the July jobs report.
Rate expectations were little-changed after the release of the FOMC minutes, with traders anticipating a roughly 85 per cent chance the central bank reduces borrowing costs next month.