Federal Reserve officials worried at their July meeting about the state of the labor market and inflation, though most agreed that it was too soon to lower interest rates, minutes released Wednesday showed.
 
The meeting summary depicted a divergence of opinion among the central bankers, whose vote to hold their key rate steady came despite objections from two Fed governors who argued in favor of cutting.

Policymakers noted rising threats to the economy that would warrant monitoring, though they largely agreed that their current stance was the appropriate way to go.

“Participants generally pointed to risks to both sides of the Committee’s dual mandate, emphasizing upside risk to inflation and downside risk to employment,” the minutes noted. While “a majority of participants judged the upside risk to inflation as the greater of these two risks” a couple saw “downside risk to employment the more salient risk.”

Governors Christopher Waller and Michelle Bowman voted against the decision to hold rates steady, preferring instead that the Federal Open Market Committee start lowering its key rate. The fed funds rate, which sets what banks charge each other for overnight lending but is used as a benchmark for other consumer rates, has been targeted between 4.25%-4.5% since December.

This was the first time that multiple governors voted against a rate decision in more than 30 years.

President Donald Trump‘s tariffs were a central part of the discussion.

“Regarding upside risks to inflation, participants pointed to the uncertain effects of tariffs and the possibility of inflation expectations becoming unanchored,” the minutes said. The document also noted “considerable uncertainty remained about the timing, magnitude, and persistence of the effects of this year’s increase in tariffs.”

Coming against an increasingly heated political backdrop, the meeting saw officials express varying opinions on where they see the economy and policy headed. A staff assessment saw economic growth as “tepid” in the first half of the year though unemployment remained low.

Various participants expressed uncertainty over the impact that tariffs would have on inflation while others worried that the jobs picture was starting to show cracks and would need a policy boost to prevent further damage.

“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,” the summary said. Decisions on rates would depend on “each variable’s distance from the Committee’s goal and the potentially different time horizons over which those respective gaps would be anticipated to close.”

The meeting came just two days before a Bureau of Labor Statistics release showing that nonfarm payrolls growth had not only remained weak in July but also that June and May had seen much weaker growth than originally reported.

Even without that information in hand, Fed officials noted that “downside risk to employment had meaningfully increased with the slowing of the growth of economic activity and consumer spending, and that some incoming data pointed to a weakening of labor market conditions.”

The minutes were released two days ahead of the main event for the Fed this week: Chair Jerome Powell delivers his keynote address Friday morning during the central bank’s annual symposium at Jackson Hole, Wyoming.

Powell is expected to use the speech to indicate at least a short-term direction for the Fed regarding rates as well as a longer-term view on policy.

Trump has exerted fierce political pressure on the Fed to cut rates. The president has berated Powell as “stupid,” “a loser” and other invectives while also criticizing the board.

With the resignation earlier this month of Governor Adriana Kugler, Trump will get to appoint another of his own candidates to the seat. Powell’s term as chair expires in May 2026, though he can stay on as governor if he wishes through 2028. In the latest wrinkle, Trump has demanded the resignation of Governor Lisa Cook amid claims that she committed mortgage fraud regarding federal loans she received for properties in Georgia and Michigan.

In the case of the Powell seat, the White House has identified 11 potential candidates, including several current and past Fed officials along with economists and Wall Street strategists.

Correction: This article has been updated to correct the spelling of Adriana Kugler’s name.