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Fed minutes showed a hawkish debate over whether more tightening was needed
Minutes from the July 28-29 meeting highlighted upside risks to inflation, including supply shocks and renewed Middle East conflict that could keep prices elevated.
Federal Reserve minutes from the July 28-29 meeting pointed to a more hawkish policy debate than what a simple 9-3 outcome suggests. While the formal vote was 3.50% to 3.75% with only three members voting for a 25 basis point hike, the minutes said several participants favored a 25 basis point increase and that many judged additional tightening would likely be necessary if inflation did not decline.
Officials also questioned whether financial conditions were restrictive enough to bring inflation back to 2%. The discussion centered on concerns that repeated shocks could delay disinflation, even as most participants expected inflation to step down later in the year as tariff and earlier energy effects fade.
The minutes cited risks from successive supply shocks that have repeatedly pushed back the return of inflation to 2%, and they noted that renewed Middle East conflict could extend supply-chain problems and lift prices again. Some officials also flagged AI-related developments as a complication, with an investment boom seen as boosting demand and prices even if productivity gains later could lower costs.
On the labor market, participants judged unemployment was near longer-run estimates and that labor demand and supply were broadly balanced, with economic activity still expanding at a solid pace. A few officials argued a July move could help prevent the need for a steeper and potentially more costly tightening sequence later, though the minutes also reflect conditions as of late July rather than a direct September signal, according to Action Forex.