In the latest twist in the ongoing tug-of-war between the Federal Reserve and the White House, minutes released Wednesday from the central bank’s late July 2025 policy meeting have revealed just how much inflation—fueled by President Donald Trump’s tariffs—has become the central concern for policymakers, even as the labor market shows signs of softening.
The minutes, summarizing the July 29-30 meeting of the Federal Open Market Committee (FOMC), paint a picture of a central bank grappling with uncertainty. Most officials agreed that the risk of inflation running too high outweighed the potential damage of job losses, leading them to keep the benchmark interest rate unchanged for the fifth consecutive meeting at a range of 4.25% to 4.5% (Associated Press, Fox Business). This decision came despite rare dissent from two board members—Governors Christopher Waller and Michelle Bowman—who argued for a 25 basis point cut due to their concerns about the labor market.
“A majority of participants judged the upside risk to inflation as the greater of these two risks,” the minutes stated, underscoring the prevailing anxiety about rising prices. Still, not everyone was on the same page. Several participants viewed the risks as balanced, and a couple considered downside risk to employment the more salient threat (Fox Business).
At the heart of the debate were President Trump’s sweeping tariffs, which have steadily increased the cost of many imported goods. According to the minutes, “the effects of higher tariffs had become more apparent in the prices of some goods but their overall effects on economic activity and inflation remained to be seen.” Some officials suggested that, setting aside the impact of tariffs, inflation was actually close to the Fed’s 2% target. Yet, others warned that tariff effects could be masking the underlying trend, making it difficult to judge the true state of price pressures (US News).
Fed Chair Jerome Powell, at a news conference after the July meeting, signaled that it might take significant additional time for the central bank to determine whether the tariffs are having a lasting impact on inflation. “In terms of timing, many participants noted that it could take some time for the full effects of higher tariffs to be felt in consumer goods and services prices,” the minutes said (Quartz).
There were plenty of reasons for caution. Inflation, as measured by the July consumer price index, was running at an annual rate of 2.7%—well above the Fed’s official target, but down significantly from its pandemic-era peak. The problem for consumers, however, is that these increases have compounded over several years, leaving prices for groceries, housing, and other essentials roughly 25% higher than they were in 2020 (US News).
Meanwhile, the labor market is sending mixed signals. The July jobs report, released after the Fed’s meeting, came in well below expectations, with only 73,000 jobs added—far short of the 110,000 economists had anticipated. Worse still, there were substantial downward revisions to the prior two months, erasing 258,000 jobs from previous estimates. President Trump responded by calling the report “rigged” and firing the head of the agency responsible for compiling the numbers (US News).
Despite these labor market jitters, most Fed officials remained more focused on inflation. “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. Yet, the majority still saw inflation as the more pressing danger (Fox Business).
That’s not to say the Fed is ignoring the jobs picture. “The labor market will be the swing factor on whether the Fed cuts interest rates in September or not,” said Ryan Sweet, chief U.S. economist for Oxford Economics. “It’s likely the August employment report and revisions will be the determining factor.” Sweet added, “Odds are rising that the Fed cuts sooner than we anticipate.”
On the political front, the Fed finds itself under relentless pressure from President Trump, who has made no secret of his desire for lower interest rates. Trump has repeatedly criticized Powell for not cutting rates, even calling for his resignation earlier this year. The president has also demanded the resignation of Federal Reserve Governor Lisa Cook, citing allegations of mortgage fraud—a charge Cook strongly denies. “I have no intention of being bullied to step down from my position because of some questions raised in a tweet,” Cook told AFP, while emphasizing her commitment to transparency about her financial history (AFP).
Trump’s attacks on the Fed are not new, but the intensity has ramped up as the White House looks to boost economic growth ahead of the next election. Despite the pressure, Powell and the majority of the FOMC have so far resisted calls for immediate rate cuts, arguing that the path of inflation and the labor market remains too uncertain to justify a change in policy.
Some on Wall Street expect the Fed to begin lowering rates at its next meeting in September, especially if economic data continues to soften. Gene Goldman, chief investment officer at Cetera Investment Management, summed up the mood: “We don’t see a recession anytime real soon,” though he does expect a pullback of anywhere from 5% to 10% in the stock market (US News).
For now, the Fed is walking a tightrope. On the one hand, it must guard against the risk that inflation, stoked by tariffs and persistent supply chain issues, becomes entrenched. On the other, it can’t afford to ignore signs of weakness in the labor market, especially with the jobs report falling short and business investment faltering amid policy uncertainty.
In the end, the minutes show a central bank deeply divided—not just over the risks themselves, but over how best to fulfill its dual mandate of price stability and maximum employment. As the Fed’s annual symposium at Jackson Hole, Wyoming, gets underway and the September policy meeting looms, all eyes will be on Powell and his colleagues as they try to chart a course through one of the most challenging economic environments in recent memory.
The stakes couldn’t be higher: with inflation still above target, the labor market looking increasingly fragile, and political pressure mounting, the Fed’s next move could shape the trajectory of the U.S. economy for months, if not years, to come.
