Federal Reserve Minutes Signal Sticky Inflation Risks

The Federal Reserve’s July 2025 meeting minutes, released on August 20, 2025, underscored a majority of policymakers prioritizing sticky inflation risks over labour market concerns, driven by tariff uncertainties. The Federal Open Market Committee (FOMC) maintained a cautious stance, with markets focused on Chair Jerome Powell’s upcoming Jackson Hole speech for signals on future rate decisions. This article explores the minutes’ implications for global capital markets.

The FOMC minutes noted that “A majority of the 18 policymakers in attendance ‘judged the upside risk to inflation as the greater of these two risks,’” with tariffs seen as a key driver of persistent price pressures. “Several participants emphasized that inflation had exceeded 2% for an extended period and that this experience increased the risk of longer-term inflation expectations becoming unanchored in the event of drawn-out effects of higher tariffs on inflation.” A three-year high in wholesale inflation suggests companies are passing on higher costs, potentially sustaining price pressures into 2026.

The Fed described the labour market as “solid,” but signs of softening were evident, with some policymakers noting vulnerabilities. “Participants generally pointed to risks to both sides of the Committee’s dual mandate, emphasizing upside risk to inflation and downside risk to employment.” Governors Christopher Waller and Michelle Bowman dissented, advocating a rate cut, marking a rare multi-governor dissent. Posts on X noted Powell’s references to “downside risks” in employment, suggesting potential openness to easing, though this remains inconclusive.

The FOMC’s focus on tariffs reflects concerns about their impact on prices and growth. Chair Powell noted that tariff-driven inflation may be temporary, but persistent effects are a risk. The minutes highlighted “considerable uncertainty remained about the timing, magnitude, and persistence of the effects of this year’s increase in tariffs.” Markets are focused on Powell’s Jackson Hole speech on August 23, as noted in Bloomberg, with the next FOMC meeting on September 16-17. The Fed’s data-dependent stance underscores the need for clarity on tariff impacts.