The Fed Held Rates Steady In July. But Members Said They Will Need To Hike Unless Inflation Cools.

Federal Reserve officials said they would need to hike interest rates unless inflation cools over the next months, the central bank's minutes showed on Wednesday.

"Many participants assessed that policy tightening would likely be necessary if inflation did not decline," reads a passage of the meeting's summary.

"Some participants commented that financial conditions might not currently be sufficiently restrictive to facilitate a return of inflation to 2 percent."

Three members of the Federal Open Market Committee voted to increase rates in the July meeting. The remaining nine voted to maintain rates in the 3.5%-3.75% range.

The minutes addressed the vote of the dissenters, who claimed that hiking rates "would likely help forestall the need for a steeper and potentially more costly sequence of tightening moves at a later stage."

Cleveland Federal Reserve president Beth Hammack said earlier this month that more than one interest rate hike could be needed.

Hammack, who among the minority of FOMC voters who supported increasing rates in the July meeting, told Yahoo Finance that "in general, one 25 basis point move probably doesn't do a whole lot for the economy."

"So it's probably some number of [movements]. But I don't want to prejudge what that number is going to be," she added, saying she doesn't "know exactly where we will end."

Minneapolis Fed President Neel Kashkari has also said that action is needed now. He claimed that a "potential series of small policy moves would be better than waiting and eventually concluding that even bolder actions were necessary." The third official who voted for a hike was Dallas Fed Lorie Logan, while the remaining nine favored a hold.

However, a recent run of softer inflation data combined with signs of a cooling labor market has weakened the case for raising interest rates at the Fed's September meeting. But inflation is still above the Fed's target and unemployment too low to make the aggressive rate cuts demanded by President Donald Trump an obvious alternative.

That leaves the Fed increasingly positioned to keep borrowing costs exactly where they are.

Bets about the Fed's next move were largely unchanged after the minutes. The CME Group's Fed Watch tool showed a 65.4% chance of a rate hold, slightly higher than Tuesday's 63.9%. Chances of a rate hike now stand at 34.6%, compared to Tuesday's 36.1%.