Fed Minutes Reveal Inflation Risks Outweigh Labor Market Concerns Amid Trade Tariff Pressures

The latest Federal Reserve meeting minutes, released Wednesday, indicate that a majority of policymakers remain more concerned about inflation than about labor market softness, as the U.S. central bank grapples with economic uncertainty exacerbated by President Donald Trump’s renewed trade tariffs.

During the July 29–30 Federal Open Market Committee (FOMC) meeting, most participants agreed that inflation risks outweigh employment concerns, despite acknowledging ongoing weaknesses in hiring and wage growth.

“The majority of participants judged that the risks to inflation were the most significant among the current economic threats,” the minutes read.

While the Fed voted for the fifth consecutive time to hold interest rates steady at 4.25%–4.5%, internal divisions over how to respond to recent trade developments became increasingly pronounced.

The renewed tariff measures imposed by President Trump, aimed at major trading partners like China and India, have rekindled inflationary pressures, particularly in consumer goods and industrial inputs.

Fed Chair Jerome Powell acknowledged during his post-meeting press conference that while the inflationary impact of tariffs could prove temporary, the central bank must remain vigilant against the risk of long-term inflationary expectations becoming unanchored.

“The experience of inflation exceeding 2% for an extended period has heightened the risk of sustained inflation expectations if elevated tariffs persist,” the minutes noted.

Producer Price Index (PPI) registered its sharpest increase in three years, signaling that businesses are beginning to pass input cost increases to consumers.

Meanwhile, revised payroll data showed job growth slowing to its weakest pace since the pandemic, with unemployment rising to 4.2% by the end of July.

This divergence sparked dissent within the Fed. Board members Christopher Waller and Michelle Bowman reportedly advocated for a 25-basis-point rate cut during the July meeting—highlighting the growing internal rift.

The minutes arrive just two days before Jerome Powell’s highly anticipated speech at the Jackson Hole symposium, a key annual event often used to signal shifts in monetary policy direction.

Investors are expected to closely scrutinize Powell’s tone, particularly after Trump renewed his calls for rate cuts, intensifying pressure on the central bank. Treasury Secretary Scott Besant also echoed those calls last week, urging the Fed to cut rates by 50 basis points at the September meeting.

“The Fed must act decisively,” Besant told CNBC. “The tariffs are causing short-term pain that could be mitigated through proactive monetary easing.”

Tensions between the White House and the Fed escalated further after Trump demanded the resignation of Fed Governor Lisa Cook, citing alleged mortgage-related misconduct. The move followed previous attacks on Powell himself and heightened speculation over who Trump might appoint as Fed chair when Powell’s term ends in May 2026.

Beyond inflation and employment, the minutes show that several officials raised concerns about asset price overvaluation, warning that stretched valuations in equities and housing markets could pose financial stability risks if left unchecked.

With the next FOMC meeting scheduled for mid-September, policymakers will review another round of jobs data and inflation indicators before deciding whether to pivot toward rate cuts—a move that could mark a dramatic shift in the Fed’s 2025 policy trajectory.