Federal Reserve officials were concerned in July about the effect that tariffs would have on inflation and unemployment, although minutes released from the meeting showed on Wednesday that a large majority found it too soon to begin cutting interest rates.
The minutes underscored the division within the central bank, which voted to maintain its target interest rate range at 4.25 to 4.50 per cent despite two Fed officials voting to reduce the rate. The UAE Central Bank, which follows the Fed's decisions due to the dollar peg, also maintained rates after the announcement on July 30.
The July meeting minutes showed “almost all” Fed officials supported the decision.
US President Donald Trump's tariff agenda has weighed heavily on the Fed this year. Officials entered last month's meeting debating whether tariffs would have a greater impact on inflation, which still remains above the Fed's 2 per cent target, or on its employment mandate.
The minutes appeared to suggested that Fed governors Christopher Waller and Michelle Bowman – two Trump appointments reported to be in consideration as the next Fed chief – were alone in their dissent.
“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,” the minutes read.
Fed chairman Jerome Powell delivered a hawkish sentiment when speaking to reporters after the decision, suggesting that the Fed could continue to delay cutting rates as it awaited further clarity on how tariffs would affect inflation.
“When we have risks to both goals, and one of them is farther away from goal than the other, and that's inflation, that means policy should be tight, because tight policy is what brings inflation down,” Mr Powell said at the time.
A dismal jobs report released two days after the meeting drastically changed the rate-cut calculus expected to play out later this year. The report showed that not only had employers added fewer jobs than expected in July, but significant downwards revisions from previous months pointed to signs of a weakening labour market.
Adding to the mixed messages the Fed has received, underlying inflation data has also come in hotter than expected since July. The report from the Bureau of Labour and Statistics showed that prices for imported items such as household furnishing, apparel and recreational goods all increased last month, while medical care services and airfare prices were also higher than previous.
Wholesale inflation data also saw its biggest increase in three years in July, in another sign that companies are raising their prices to offset higher costs.
Those reports have done little to dent expectations of a September rate cut, however. About 83 per cent of traders believe the Fed will resuming cutting rates next month, according to the CME Group's FedWatch tool, before reducing policy again in December.
“The labour market will be the swing factor on whether the Fed cuts interest rates in September or not,” Oxford Economics chief US economist Ryan Sweet wrote to clients.
The minutes come at a crucial time for Mr Powell, who is due to deliver a keynote address at the annual Jackson Hole symposium in Wyoming on Friday. Mr Powell will deliver the highly anticipated speech under pressure on several fronts from Mr Trump, the two dissenting Fed governors and the looming arrival of a key Trump ally to the Federal Reserve board.
Friday's address during the annual gathering, attended by central bankers from around the world, is expected to include Mr Powell's short-term and long-term views on monetary policy.
Earlier on Wednesday, Mr Trump opened a new line of attack on the US central bank, calling for the resignation of Fed governor Lisa Cook after one of his allies accused her of mortgage fraud. Ms Cook's term as Fed governor expires in 2038.
Together they, along with a rotating group of regional fed bank presidents, make up the Federal Open Market Committee that sets its interest rates.
The move follows a pattern of attempts by Mr Trump to exert control of the Fed, whose independence is generally considered sacrosanct among economists and policymakers
