Three policymakers seek a Fed rate increase while Lagarde points to 2,500 trade restrictions
Minutes of the July meeting show three Fed officials preferring a rate increase. Meanwhile, Boston Fed researchers find productivity absorbed most 2025 tariff costs, and the ECB president highlights 2,500 new trade restrictions worldwide.
Economics & Markets··Night
Three votes for a hike
The Federal Open Market Committee left its target range unchanged at 3.5 per cent to 3.75 per cent at its 28 and 29 July meeting. Minutes show Beth Hammack, Neel Kashkari and Lorie Logan preferred a 25 basis point increase, citing broad price pressures and arguing for a more restrictive stance. Meanwhile, staff figures put total PCE inflation at 4.1 per cent in May and core PCE at 3.4 per cent, as the Committee flagged uncertainty from Middle East developments and artificial intelligence investment.[1]
Productivity absorbs tariffs
Researchers at the Federal Reserve Bank of Boston estimate that average realised tariffs rising from 2.5 per cent to 10 per cent added 1.1 percentage points to aggregate production costs in 2025. Labour productivity gains cut unit costs by 1.3 percentage points, leaving a combined contribution to core PCE inflation of 0.5 percentage points. With wage growth contributing 1.9 percentage points, about 0.6 percentage points of the roughly 3 per cent core rate is left to other forces.[2]
Trade restrictions multiply
Speaking in Geneva, the ECB president said more than 2,500 trade restrictions were imposed worldwide last year. Lagarde noted that China now competes directly in 40 per cent of the euro area's areas of comparative advantage, compared with 25 per cent in the year 2000. She added that European industrial electricity prices averaged more than twice United States levels, and roughly 50 per cent above those in China.[3]
