Higher interest rates from the Federal Reserve this week would have put the central bank in a better position to tackle elevated inflation, two officials who voted against the latest policy decision said on Friday.
Three policymakers — Beth M. Hammack of the Federal Reserve Bank of Cleveland, Neel Kashkari of the Minneapolis Fed and Lorie K. Logan of the Dallas Fed — opposed Wednesday’s move to hold borrowing costs steady at a range of 3.5 to 3.75 percent. They instead voted for a quarter-point increase. It was the first time since 2016 that three officials on the Federal Open Market Committee dissented in the same direction regarding a policy change.
The disagreement inside the Fed, which has materialized early in Kevin M. Warsh’s tenure as chairman, centers on how aggressive officials need to be to resolve the inflation problem plaguing the central bank. For five years, the Fed has missed its 2 percent inflation target, an overshoot that Mr. Warsh has pledged to fix. The Fed’s preferred inflation gauge, as measured by the Personal Consumption Expenditures price index, was 3.7 percent as of June.
In a statement on Friday, Ms. Hammack said that she lacked confidence that inflation would return to its 2 percent target on its own. That, she said, was because the Fed’s policy settings were not “appropriately restrictive,” meaning they were not weighing heavily enough on economic activity.
“In my view, now is the time for the F.O.M.C. to act to speed the return of P.C.E. inflation to our 2 percent objective and deliver on our commitment to price stability for the American people,” she said. “A higher federal funds rate would help restrain economic activity and reduce inflationary pressures.
Those concerns were echoed by Mr. Kashkari, who said that “to manage against the risk that high inflation could become entrenched, he would “rather tighten policy incrementally” as he gathered more data on the trajectory of the economy.
He added that if inflation remains elevated, “a potential series of small policy moves would be better than waiting and eventually concluding that even bolder actions were necessary.”
The Fed’s inflation situation has been compounded by the fact that fresh price pressures have cropped up from a multitude of sources, many of them well outside Fed officials’ control. The war with Iran, which has upended global energy markets, has intensified again after a brief reprieve. During that break, inflation eased, but the resumption of fighting is likely to have pushed it back up again.
President Trump has applied more tariffs, too. Companies are also still spending enormous sums to expand their artificial intelligence capabilities, sending the prices for key inputs like semiconductors and servers significantly higher.
Ms. Hammack on Friday said businesses in her district described price pressures as “broadening rather than fading,” a concern for officials who are chiefly worried about allowing a persistent inflation problem to fester.
Mr. Kashkari specifically called out the “massive investment in data centers” tied to the A.I. boom as adding a “new demand element to the high inflation Americans are experiencing.”
Wednesday’s decision was not the first time these three regional presidents dissented in unison. In April, when Jerome H. Powell was chair, they voted against the Fed’s policy statement for what they described as an “easing bias” that suggested that the next move from the central bank was most likely to a reduction in rates.
Instead, they wanted the central bank to drop that phrase in a signal that rate increases were equally plausible. The Fed in June ended up removing that line, along with any forward-looking wording as part of a sweeping overhaul to the statement that was spearheaded by Mr. Warsh.
The statement was just one aspect of the Fed’s communications strategy that Mr. Warsh has changed. In his roughly two months as chair, he has broken with his predecessors and offered few signals about what the Fed plans to do next with rates, how the central bank might respond to changes in the data and his views on the trajectory of the economy more broadly. One of the only things he has opted to be explicit on is that he would “deliver price stability.”
He stuck to that approach at a news conference on Wednesday but faced a quick rebuke from financial markets. Long-term U.S. government borrowing costs jumped as investors pushed back the timing of eventual rate increases. Expectations about the pace of inflation in the coming years also rose.
Those market moves indicated growing skepticism across Wall Street about whether Mr. Warsh would back up his tough talk on inflation with policy tightening should the inflation data not cooperate. In fact, going into the July meeting, investors had penciled in 30 percent odds that Mr. Warsh might deliver a quarter-point increase.
But on Wednesday, it became clear that Mr. Warsh was not in a hurry to raise rates despite a growing cohort of policymakers who support such a move. While nine officials backed holding rates steady, several of those people have indicated that if inflation does not soon retreat to 2 percent, they would be prepared to take action.
The Fed next meets in September, at which point officials will have had two more months of data on inflation, the labor market and consumer spending, among other measures.