WASHINGTON, August 21, 2026 – Fed policymakers demonstrated a greater readiness to increase interest rates when inflation is high. The minutes of the July 28–29 meeting show a growing divide on the matter, even as rates remained steady.
The FOMC voted 9-3 to keep the benchmark rate at 3.50% to 3.75%. Regional presidents Beth Hammack, Neel Kashkari, and Lorie Logan dissented, each preferring a 25-basis-point increase.
From the meeting minutes, it was clear that the call for stricter monetary policy was not only held by the three dissenters. Some members favored an increase in interest rates by a quarter point as prices started broadening. According to their views, this would help the Fed achieve its dual mandate.
Most members said that more tightening measures could be necessary if there was no reduction in inflation. Only a few were asking if financial conditions were tight enough to bring down inflation to 2%. The committee stressed that their future decisions would be based on the upcoming economic information and outlook for inflation.
Inflation remained above target at the time of the meeting. The staff reported that headline personal consumption expenditures inflation was 4.1% in May, while core PCE inflation, which excludes food and energy, stood at 3.4%. Staff estimates indicated that both measures moderated in June, with headline PCE estimated at 3.7% and core PCE at 3.3%.
Price pressure was due to past tariff hikes, higher prices for energy and inputs related to the war in the Middle East, as well as demand linked to investment in artificial intelligence infrastructure. Although many of the participants thought that inflation would decline over the remainder of 2026, they believed that the risk profile leaned toward rising prices.
The labor market was portrayed as being stable, with the unemployment rate standing at 4.2% in June. It was stated that economic activity was growing at a healthy pace, thanks to consumer spending and investments in the field of artificial intelligence.
The meeting minutes put the Fed in a situation where it has to balance growth and stability in the labor market while considering the possibility that inflation might be persistently elevated. The decision on whether or not to hike rates will depend on the July data.
