Impact of tariffs on prices becomes more apparent: Fed

Federal Reserve policymakers think that overall inflation remains marginally above the target of 2% and that the impact of tariffs on prices had become more apparent, particularly with regard to commodity prices.

According to the minutes of the July 29-30 meeting, released Wednesday, members of the Fed’s interest-rate-setting committee stated that services price inflation continued to slow, according to the latest available data, but monetary policymakers generally expect overall inflation to continue rising in the short term.

The majority of the Federal Open Market Committee (FOMC) members, with only two exceptions, voted to keep the federal funds rate unchanged at a range of 4.25% to 4.50% at their July 29-30 meeting.

Several members indicated that the current level of interest rates may not be significantly above the neutral level, which neither stimulates nor slows economic activity.

Despite the increasing clarity on the implications of tariffs on certain goods, Fed members still believe that the overall effects on the economy and general inflation are not yet fully understood, the minute showed.

Fed members pointed to several factors contributing to the delay in the full impact, including companies building up inventories ahead of the new tariffs, the slowness of the cost-pushing process to consumers, the gradual updating of price lists, and the ongoing trade negotiations.

The minutes also stated that participants viewed the economy as facing dual risks: "upside risks to inflation and downside risks to employment."

However, most members considered inflation to be the greatest risk, while a few viewed the weakness in the labor market as the most significant challenge.

The risks to inflation relate particularly to the uncertain impact of customs duties and the possibility of inflation expectations spiraling out of control amid significant doubts about the timing, magnitude, and durability of the impact of recent tariff increases, it added.