Growing divide splits Federal Reserve as Jackson Hole approaches

What’s more important to you: the increasing prices you pay for goods and services or the job you work at the same wage to afford them?

Well, inflation seems to be the winner hands down when it comes to certain economists.

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At last month’s meeting of the Fed’s Federal Open Market Committee, most of the participants’ concerns over tariff inflation took priority over softening in the labor market.

The July 30 FOMC minutes were released Aug. 20.

They show that President Donald Trump’s tariffs fed a growing divide within the independent central bank’s benchmark policy-making panel.

Trump has made repeated calls for Fed Chair Jerome Powell to resign.

Chip Somodevilla/Getty Images

The dual mandate plays a major role in the economy

The minutes do not name participants however the majority of the 12-member FOMC left the Federal Funds Rate unchanged in a range of 4.25% to 4.5% last month, citing elevated uncertainty despite seeing economic activity moderating during the first half of the year.

The statement at the time characterized the labor market as “solid” but said inflation remained “somewhat elevated.”

The reason: expected inflation from tariffs creeping up this summer then through the supply chain into homes, factories and retail outlets later this year.

The independent central bank sets monetary policy according to its dual mandate: maintaining low inflation and stable unemployment rates while the economy chugs along at a stable rate of growth.

Sounds easy, but rising prices can lead to decreases in employment rates and higher job numbers lead to increased inflation.

The Fed needs to maintain a balanced approach to monetary policy taking into account all potential impacts of U.S. fiscal policy such as tariffs and taxes. It’s also historically non-partisan.

The funds rate is tied to the cost of borrowing money which is why, in addition to mortgages, car loans and credit cards bills have sky-high interest rates.

The Fed’s prudent “wait-and-see” approach has the White House team enraged.

Trump has made repeated calls for Fed Chair Jerome Powell to resign, and has threatened to install a “shadow’’ replacement who will lead the charge to slash rates.

July FOMC also raised questions about the labor market

Several participants said they saw the risks to their dual mandate as roughly balanced, the minutes showed, while a couple said they were more concerned about the labor market.

Though the minutes don’t identify policymakers by name, Governors Christopher Waller and Michelle Bowman voted against the decision to hold rates steady, pointing to a weakening job market.

In his press conference following the meeting, Powell said the inflationary impact from tariffs could well be temporary, but the central bank needed to guard against a more persistent effect.

A majority of the 18 policymakers in attendance “judged the upside risk to inflation as the greater of these two risks,” the minutes show.

Several participants emphasized that inflation had exceeded the Fed’s own 2% target for an extended period, and that this experience increased the risk of longer-term inflation expectations becoming unanchored.

More Federal Reserve:

The next FOMC meeting is Sept. 17.

The widely watched CME Group’s FedWatch Tool expects a 81.9% chance of a .25% rate cut.

Some Fed watchers and market experts expect a .50% cut while others say the FOMC will hold rates steady again.

There are two more major economic reports on August data to come prior to that meeting: the CPI and the jobs report.

Both will play major roles in how the FOMC will act.

Meanwhile, around 120 economists, academics and government leaders from across the globe are gathering Aug. 21 to Aug. 23 at the Jackson Hole Economic Symposium in Wyoming.

Powell’s landmark speech will be widely watched as an indicator if the Fed is moving toward a rate cut.