The Federal Reserve left rates on hold in July, but the minutes show a change in tone: three members voted to raise rates and a larger group favored tightening. The data arrived after the meeting, however, make September much less predictable.
The Federal Reserve is more divided on rates than it appeared just a month ago. The minutes of the meeting of 28 and 29 July show that several members were ready to increase the cost of borrowing by 25 basis points and that many believe a new tightening is likely if inflation does not fall back towards 2%.
The final decision was to leave rates unchanged in the 3.50%-3.75% range, but with three votes against. In June, however, the FOMC had decided unanimously. This is the fact that makes the minutes more important than the simple confirmation of the pause: within the American central bank the front in favor of higher rates has widened.
The point, however, is to understand what it means for September. The minutes portray an economy at the end of July, while in the following weeks weaker data on jobs, inflation and consumption arrived.
Fed more divided: from 12-0 to 9-3 in one month
In June, all twelve voting members of the FOMC supported leaving rates unchanged. In July the vote became 9-3: Beth Hammack, Neel Kashkari and Lorie Logan asked for a quarter-point increase.
The minutes also go beyond the official result. “Several” participants were in favor of a hike already in July, while “many” assessed that a new tightening would probably be necessary if inflation did not decline.
Supporters of tightening believed that price pressures were widespread and feared that waiting too long might require stronger action later. Furthermore, the minutes do not reveal support for a cut in interest rates: a significant change of scenario compared to the beginning of the year.
Because September isn’t already decided
A Fed more concerned about inflation does not automatically mean a hike on September 15th and 16th.
After the July meeting, in fact, information arrived that the FOMC did not have at the time. Inflation showed some signs of slowing, American businesses reported unexpected job losses in July and retail sales fell.
However, the market has not eliminated the risk of a tightening later in 2026. The question therefore becomes very precise: will the Fed give more weight to inflation still above the target or to the first signs of weakening of the economy?
Artificial intelligence enters the Fed dossier
A less obvious element also appears in the minutes: artificial intelligence has now entered the debate on inflation and financial stability.
Several members believe that investments in AI are increasing demand and may contribute to pricing pressures. In the sectors linked to data centers and digital infrastructures, the demand for specialized workers has also grown.
The Fed also looks at the opposite risk. Stock valuations remain high and some members fear that disappointment over AI’s prospects could lead to a stock market correction and tension for those who financed these investments through debt.
It is an important step because it shows that, for the American central bank, AI is no longer just a source of growth: it has also become a variable to monitor for prices and markets.
Wall Street rises, Treasuries fall
The immediate reaction to the reports was contained. On Wall Street, the Dow Jones closed up by 0.22%, the S&P 500 by 0.21% and the Nasdaq by 0.16%.
Above all, the session was dominated by the US Treasury’s decision to temporarily double some programs for the repurchase of long-term securities, after the yield on the thirty-year Treasury Bond had reached 5.337%, the highest since 2007.
The yield on the ten-year bond thus fell to around 4.66% and that of the thirty-year bond to around 5.20%. The market, therefore, did not read the minutes as confirmation of an immediate rise in September.
Because it is also of interest to European markets
The Fed’s moves are not confined to the United States. Higher US rates can strengthen the dollar, push up global bond yields and increase the cost of financing outside the US as well.
For investors it also means greater competition between shares and government bonds: if Treasuries offer higher yields, some capital may move towards bond assets, with effects on European stock markets and international flows.
This is why any change in expectations about the Fed is also quickly reflected on Stocks, bonds and euros.
What changes now for rates
The picture is more complex than a simple “Fed ready to raise”.
The front in favor of tightening has grown and the fight against inflation remains the priority, but the data arriving after the meeting have strengthened the reasons for those who prefer to wait.
For this September it remains open, while the risk of an increase later in the year has not disappeared. The next indications on the PCE index, the price measure particularly followed by the Fed, and on the labor market will be decisive.
The real news from the minutes is this: the Fed is no longer discussing when to cut rates. She’s deciding whether she can stay still or whether another squeeze will be needed.
