FOMC minutes show a Fed growing restless on inflation as Warsh floats six-meeting FOMC schedule for 2027

The minutes from the July 28-29 Federal Open Market Committee (FOMC) meeting showed members growing increasingly concerned about persistent inflation, with some insisting that price pressures were up even after discounting Iran, tariffs and other more transitory factors. Meanwhile, Fed Chair Kevin Warsh continued to shake things up, proposing a reduced schedule of six FOMC meeting beginning in 2027. In the staff review of the financial situation, they noted that “developments over the intermeeting period were influenced by the conflict in the Middle East,” but that “inflation compensation moved little in response to higher oil prices, nominal rates rose largely on expectations of higher policy rates, equities were somewhat lower, and the dollar edged up modestly.” “Near-term inflation compensation declined notably after the June FOMC meeting and moved up only marginally thereafter despite the sharp increase in oil prices,” the staff wrote. “Market outreach and written responses to the Open Market Desk Survey of Market Expectations (Desk survey) indicated that this decline after the June FOMC meeting was attributable in part to investors' perceptions of the Committee's strong resolve to deliver price stability, as reflected in the June FOMC statement and press conference. Longer-term inflation compensation remained stable and consistent with the Committee's 2 percent longer-run inflation objective.” The minutes noted that while inflation remained elevated, [l]abor market conditions remained stable, and real gross domestic product (GDP) continued to expand.” “Total inflation was expected to decline over the second half of the year, as retail gasoline prices were forecast to move lower and as core inflation was projected to slow modestly,” Fed staff said. “Inflation was expected to step down next year, as the effects of tariffs and the Middle East conflict wane, and to be about 2 percent in 2028. The staff's inflation forecast was similar to the one prepared for the June meeting.” “Real GDP was projected to slightly outpace potential next year, supported by financial conditions and AI-related investment, they wrote. “The unemployment rate was expected to remain close to the staff's estimate of its longer-run rate this year and to edge lower next year, ending slightly below its longer-run rate in 2028. The staff's outlook for economic activity was a touch weaker than the one prepared for the June meeting, mostly in response to incoming data.” “On balance, risks to the forecasts for employment and real GDP growth were seen as skewed to the downside,” they added. “Risks to the inflation forecast were seen as skewed to the upside, with the possibility that inflation would prove to be more persistent than the staff anticipated.” Turning to FOMC members’ deliberations, the minutes noted that participants “acknowledged that inflation remained elevated, and “several participants noted that price increases over the past year were broad based, spanning various categories of goods and services,” while some participants “noted that, even after excluding prices of items most directly affected by tariffs and energy prices, underlying inflation appeared to be elevated.” Most participants anticipated that inflation would fall over the rest of 2026 “as the effects of tariffs and earlier energy price increases wane, but many participants noted the possibility that inflation might be more persistently elevated.” Regarding the labor market, participants observed “that labor market conditions were stable, with labor demand and supply in balance,” and that the unemployment rate “had remained relatively stable over the past year near most estimates of its longer-run level.” “Participants generally expected labor market conditions to remain stable in the near term, with the unemployment rate staying close to current levels,” the minutes said Regarding overall economic activity, participants “generally expecte...