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. In separate statements on Friday, each detailed their rationale for breaking ranks with the majority.
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 main 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 said in her statement: “Businesses describe pricing pressures as broadening rather than fading, and consumers are expressing despair over persistently higher prices.”
And the current level of borrowing costs isn’t keeping growth and inflation in check, Logan suggested, writing “labor, consumption and financial market conditions indicate that monetary policy is not restraining the economy.”
Kashkari also pointed to the influence of AI spending on inflation: “massive investment in data centers has also added a new demand element to the high inflation Americans are experiencing.”
Hiking interest rates would carry less risk than waiting too long allowing inflation to become “entrenched” in the economy, he added.
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.
Inflation has been above that threshold for five consecutive years, all three Fed dissenters noted Friday. That means snowballing price increases over time: In June, consumer prices were up 20.8% from the same month five years earlier, according to Commerce Department data.
“Every month of above-target inflation compounds the strain on the budgets of American families and businesses,” Logan said.
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. At the May meeting — Powell’s last as Fed chief — Hammack, Kashkari and Logan also dissented, saying officials should have signaled that rate hikes are on the table.
Current Fed Chairman Kevin Warsh has said that he wants to have a “family fight,” with people able to disagree — even loudly.
But Warsh himself hasn’t signaled where he stands on the outlook for interest rates, saying he believes giving forward guidance restricts the Fed’s future options. That makes dissents possibly the best indication of where rates may be heading.
“Dissents are the new forward guidance,” James Bianco, president of market analysis firm Bianco Research, wrote on social media.
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.
The labor market in 2025 added jobs at an unusually weak pace, but job gains picked up in the first half of this year as the unemployment rate held steady at a low 4.2%, according to Labor Department data.
“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 Friday.
The-CNN-Wire
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