Dollar Edges Higher After FOMC Minutes Show Inflation Fears Outweigh Jobs Concerns

The Federal Reserve’s July meeting minutes revealed that most officials viewed inflation risks as a greater concern than potential employment weakness, with tariff-driven price pressures dominating the discussion despite two Governors dissenting in favor of a rate cut.

The minutes showed a majority of the 18 policymakers in attendance “judged the upside risk to inflation as the greater of these two risks,” while several saw risks as balanced and only a couple prioritized employment concerns.

This came despite the first dual dissent since 1993, with Governors Christopher Waller and Michelle Bowman voting against the decision to hold rates steady, preferring instead that the Federal Open Market Committee start lowering its key rate.

Key Takeaways

• Inflation risks dominated: A majority of participants judged the upside risk to inflation as the greater concern compared to employment risks, with several emphasizing that inflation had exceeded 2% for an extended period
• Tariff uncertainty persists: Participants judged that considerable uncertainty remained about the timing, magnitude, and persistence of this year’s tariff effects on inflation
• Historic dissent: Governors Waller and Bowman both voted for a 25-basis-point cut, marking the first dual dissent since 1993
• Pass-through concerns: Several participants expected that many companies would increasingly have to pass through tariff costs to end-customers over time
• Policy may be less restrictive: Several participants commented that the current target range may not be far above neutral, suggesting monetary policy might be less restrictive than previously thought

Link to official FOMC Meeting Minutes (July 2025)

Fed officials were particularly concerned about the persistence of tariff effects. A few participants remarked that tariff-related factors, including supply chain disruptions, could lead to stubbornly elevated inflation and that it may be difficult to disentangle tariff-related price increases from changes in underlying trend inflation.

Looking ahead, participants noted that the Committee might face difficult tradeoffs if elevated inflation proved to be more persistent while the outlook for the labor market weakened.

Market Reaction:

U.S. Dollar vs. Major Currencies: 5-min

The dollar slipped into the London close but firmed after the Fed minutes signaled a stronger focus on inflation. Gains were steady across most major pairs, with USD/JPY leading modestly higher. The moves lacked the sharp swings that often follow Fed surprises, suggesting markets had already braced for a hawkish tone.

The measured response likely reflected several factors: traders had already positioned for inflation concerns, the minutes were somewhat dated, given they predated the weak July jobs data, and positioning remains cautious ahead of Powell’s Jackson Hole speech on Friday.

The dollar held most of its post-FOMC minutes gains through the session, but still ended the day weaker against the franc, the yen, and a relatively firm euro.