by Calculated Risk on 8/20/2025 02:00:00 PM
This is a little stale since this meeting was before the July employment report.
From the Fed: Minutes of the Federal Open Market Committee, July 29–30, 2025. Excerpt:
n their discussion of inflation, many participants observed that overall inflation remained somewhat above the Committee’s 2 percent longer-run goal. Participants noted that tariff effects were becoming more apparent in the data, as indicated by recent increases in goods price inflation, while services price inflation had continued to slow. A couple of participants suggested that tariff effects were masking the underlying trend of inflation and, setting aside the tariff effects, inflation was close to target.
With regard to the outlook for inflation, participants generally expected inflation to increase in the near term. …
In their evaluation of the risks and uncertainties associated with the economic outlook, participants judged that uncertainty about the economic outlook remained elevated, though several participants remarked that there had been some reduction in uncertainty regarding fiscal policy, immigration policy, or tariff policy. Participants generally pointed to risks to both sides of the Committee’s dual mandate, emphasizing upside risk to inflation and downside risk to employment. 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. Regarding upside risks to inflation, participants pointed to the uncertain effects of tariffs and the possibility of inflation expectations becoming unanchored. In addition to tariff-induced risks, potential downside risks to employment mentioned by participants included a possible tightening of financial conditions due to a rise in risk premiums, a more substantial deterioration in the housing market, and the risk that the increased use of AI in the workplace may lower employment.
In their discussion of financial stability, participants who commented noted vulnerabilities to the financial system that they assessed warranted monitoring. …
In discussing risk-management considerations that could bear on the outlook for monetary policy, participants generally agreed that the upside risk to inflation and the downside risk to employment remained elevated. Participants noted that, if this year’s higher tariffs were to generate a larger-than-expected or a more-persistent-than-anticipated increase in inflation, or if medium- or longer-term inflation expectations were to increase notably, then it would be appropriate to maintain a more restrictive stance of monetary policy than would otherwise be the case, especially if labor market conditions remained solid. By contrast, if labor market conditions were to weaken materially or if inflation were to come down further and inflation expectations remained well anchored, then it would be appropriate to establish a less restrictive stance of monetary policy than would otherwise be the case. Participants noted that the Committee might face difficult tradeoffs if elevated inflation proved to be more persistent while the outlook for the labor market weakened.
emphasis added
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