Fed officials warn not raising interest rates was a mistake
By Bryan Mena, CNN
Washington (CNN) — Inflation is a far more serious and persistent issue than the Fed has made it out to be, and it must be addressed by raising interest rates, a group of rate-setting committee members said Friday.
For months, the war in Iran has destabilized the global energy market, pushing up gas prices in America. The Fed has no control over that, but that isn’t the only source of inflation pressures, the officials said.
The Fed on Wednesday held interest rates steady for the fifth meeting in a row. However, three officials – Fed presidents Beth Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie Logan of Dallas – dissented in favor of raising rates by a quarter point. Two of them detailed their rationale for breaking ranks with the majority early Friday morning, with the third expected later today.
Spiking energy costs can be especially tricky for the Fed. For one, higher fuel costs touch so many parts of the economy, like the prices to ship groceries, airfares for vacation and even the gas to help Americans get to work. But interest rates, the Fed’s biggest tool to combat inflation, can’t reopen the Strait of Hormuz and get oil flowing again, the real problem behind much of the rising oil costs.
But the inflation pressures may already be spreading into the demand-side of the economy, Hammack added.
“Businesses describe pricing pressures as broadening rather than fading, and consumers are expressing despair over persistently higher prices,” Hammack wrote.
Kashkari said he feared “high inflation could become entrenched” in the economy, and he said a rate increase was less risky than waiting too long and allowing inflation to get out of control again.
While overall annual inflation fell to 3.7% in June from 4.1% in May, as measured by the Personal Consumption Expenditures price index, that’s still well above the Fed’s 2% target.
Dissents under former Fed Chair Jerome Powell were rare, but they began to increase during the second Trump administration as uncertainty about the economy rose. Current Fed chairman Kevin Warsh has said that he wants to have a “family fight,” with people able to disagree — even loudly.
Furthermore, Warsh has said that the Fed will no longer be issuing forward guidance on where it plans to set rates, making dissents possibly the clearest window into internal discussions of the board.
Fed officials have kept their benchmark lending rate unchanged at a range of 3.5%-3.75% for all five policy meetings in 2026 so far.
The Fed has traditionally held what’s known as the “dual mandate” of maintaining high employment and low inflation, but both Hammack and Kashkari wrote in their statements that the scale had tipped too far to one side — the inflation side.
“Given the stability of the labor market, with the unemployment rate near my estimate of maximum employment, I view high inflation as the more pressing problem,” Hammack said in her dissent statement Friday.
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