Federal Reserve officials, meeting in Washington last month, concluded that the combination of low unemployment and still-elevated inflation meant they should delay cutting interest rates, at least for now.
Not all of them agreed, underscoring the challenge for Jerome H. Powell, the Fed’s chair, to forge a consensus across policymakers at forthcoming meetings.
A record of the central bank’s July 29-30 meeting, released on Wednesday, showed a divided Fed grappling with conflicting signals from the economic data, and how to respond to them.
Policymakers “generally expected inflation to increase in the near term,” the minutes showed, but they disagreed about whether that would be a short-term increase as companies passed along the cost of tariffs, or could morph into a more persistent problem. They agreed that job growth has slowed, but not about what that slowdown meant for the economy. Most important, they were divided about how to weigh the conflicting risks of higher inflation and rising joblessness.
“A majority of participants judged the upside risk to inflation as the greater of these two risks,” the minutes showed, “while several participants viewed the two risks as roughly balanced, and a couple of participants considered downside risk to employment the more salient risk.”
Ultimately, policymakers decided to hold rates steady for the fifth meeting in a row. But it was one of the most hotly contested monetary policy votes in decades, with two members of the Board of Governors officially opposing the decision to hold borrowing costs steady. It was the first double dissent on an interest rate vote from policymakers of that rank since 1993.
The meeting took place amid intense pressure from President Trump to cut interest rates, despite laws that are meant to insulate the central bank from political influence. Mr. Trump has repeatedly threatened to fire Mr. Powell and has seized on cost overruns in the central bank’s headquarters-renovation project as a potential pretext for doing so.
On Wednesday, Mr. Trump started a new assault, this time targeting Lisa Cook, a Fed governor. He called on her to resign after Bill Pulte, the director of the Federal Housing Finance Agency, said on social media that his office had investigated Ms. Cook and found that she appeared to have falsified bank documents to obtain favorable loan terms.
Mr. Powell and other Fed officials have tried to project an appearance of normalcy amid the attacks, emphasizing that their policy decisions will depend on the state of the economy, not political pressure. The minutes of the July meeting contain no reference to Mr. Trump’s threats.
Instead, the debate inside the central bank focused on questions related to inflation and the labor market. Most Fed officials are wary of cutting interest rates too soon because inflation remains above their long-run target of 2 percent, and it is likely to rise further as a result of Mr. Trump’s tariffs. And they believe they can afford to wait because the unemployment rate remains low.
The two dissenters, Christopher J. Waller and Michelle W. Bowman — both of whom were appointed by Mr. Trump in his first term — saw things differently. They argued that a fragile labor market called for the central bank to take pre-emptive action to support it and that inflationary pressures tied to tariffs would ultimately prove to be temporary.
Just days later, their warnings about the labor market looked prescient. Data released on Aug. 1 showed much more lackluster monthly jobs growth this spring and summer than was previously reported despite the unemployment rate staying relatively stable around 4.2 percent.
But the downbeat jobs report was followed shortly thereafter by new inflation data that showed a worrying acceleration in underlying inflation in July even as the tariff impact on consumer prices overall was less than initially feared.
That combination presents a challenge for the Fed, which is tasked by Congress with keeping inflation low and stable and ensuring the labor market is robust. The recent signs of deterioration in the labor market appear to have made it more likely that officials will lower interest rates at their next meeting, in mid-September. But the pace of cuts beyond the first move will hinge in large part on how the economic data evolves.
The minutes from the July meeting were released just days before Mr. Powell is expected to speak at the central bank’s annual gathering of leading economic policymakers in Jackson, Wyo. His speech, which is scheduled for Friday morning, is his most closely watched of the year and is typically used to send important signals about the economic outlook and the path forward for monetary policy.
Mr. Powell is unlikely to explicitly commit to a September cut, given that there is another round of economic data between now and the next vote. But, he is expected to lay out the case for reducing borrowing costs in a bid to shift policy toward a more “neutral” setting that neither stimulates growth nor slows it down.