Here's why the 3 dissenters on the Fed wanted to raise interest rates

Here's why the 3 dissenters on the Fed wanted to raise interest rates

Jennifer Schonberger · Senior Reporter

Fri, July 31, 2026 at 5:11 PM GMT+3 5 min read

Three Federal Reserve members who wanted the central bank to raise interest rates this week weighed in on Friday with their rationale.

Cleveland Fed president Beth Hammack said in a statement that inflation is too high and she is not confident it will return to the central bank's 2% goal.

"In my view, now is the time for the FOMC to act to speed the return of PCE inflation to our 2 percent objective and deliver on our commitment to price stability for the American people," Hammack said in the statement. "The longer that high inflation persists, the more challenging and costly it can be to bring it back down."

Hammack noted that while higher energy prices have boosted inflation this year, she sees inflationary pressures from the demand side of the economy, too. Businesses she speaks with describe pricing pressures as broadening rather than fading, she said, and consumers are "expressing despair" over persistently higher prices.

In a 9-3 decision on Wednesday, the Fed held interest rates at the current range of 3.5% to 3.75%. In addition to Hammack, Minneapolis Fed president Neel Kashkari and Dallas Fed president Lorie Logan dissented in favor of a quarter-point hike.

Kashkari on Friday pointed to how a series of shocks, starting with the war in Ukraine to now energy prices, is harder for the central bank to look through, and he too would like to take action before inflation becomes deeply embedded.

"To manage against the risk that high inflation could become entrenched, I would rather tighten policy incrementally as we gather more data on the path of inflation and employment," Kashkari said in a statement. "If inflation remains elevated, a potential series of small policy moves would be better than waiting and eventually concluding that even bolder actions weren't necessary."

On the other hand, Kashkari said that if inflation "durably fades," the Fed could slow or pause rate hikes.

Logan, in a statement, also said she does not believe inflation is on course to reach the Fed's 2% goal and notes that risks are to the upside.

"Without any policy restraint, inflation will likely continue to trend above target until there's an unanticipated shock," Logan said in the statement. "Modest action in the near term would reduce the likelihood of needing to take sharper action later."

While Fed Chairman Kevin Warsh has harped on the central bank's commitment to delivering price stability — Fed speak for lowering inflation — he moved to hold rates steady on Wednesday and did not give markets confidence he would take necessary steps to control inflation.

Warsh repeatedly pointed to bond yields that have shot materially higher, suggesting that was a good thing and implying that the Fed welcomes the higher yields as a way to raise borrowing costs and tighten policy through markets.

That position immediately drew widespread skepticism and even scorn.

"We think that the bond market is not mainly responding to the July decision, but rather to the uncertainty regarding the strategy the Fed chair intends to follow to deliver price stability," Krishna Guha, head of central banking strategy and economics for Evercore ISI said in a note.

Guha noted that while the decision to hold rates steady was dovish, Warsh could have still signaled a hawkish tone during his press conference.

"Instead, the confusing discussion about the rise in bond yields and its relationship with Fed policy seems to have caused some loss of confidence in whether he has a coherent and credible strategy to bring down inflation and fueled fears that he is a dove in hawk's clothing," he said.

The yield on the two-year Treasury, which closely tracks where investors believe the Fed's benchmark interest rate will head in the near future, remains around 4.27%, signaling about two rate hikes. The yield on the 10-year Treasury was trading around nearly 4.7% Friday morning.

Those higher bond yields, Guha said, reflect higher inflation expectations because of Fed policy, not higher energy prices.

After the meeting, Warsh said the Fed can't magically bring inflation down quickly.

"I hear from you what I hear more broadly from households and businesses: Impatience. 'Deliver it already,' " he said. "The suggestion that we're going to be able to do it with our magic wands is one I want to disabuse you and everyone else of."

The Fed's favored inflation gauge showed prices edged down in June, though still remain uncomfortably above the central bank's 2% goal.

The Personal Consumption Expenditures Index clocked in at 3.3% in June on a core basis, which excludes volatile food and energy prices. That's down a tenth of a percentage point from 3.4% in May. Month over month, core PCE increased 0.1%, compared with expectations of 0.2% and down from 0.3% in May.

But since this inflation reading fighting between the US and Iran has reignited, pushing up energy prices, threatening to push inflation higher if sustained.

Warsh said that in addition to PCE, he is looking at a range of inflation measures to assess underlying price pressures in the economy. Referencing the task forces has created to assess how the Fed examines inflation along with four other areas, Warsh said, "who knows, come after next January, what we might say about strategy."

Michael Feroli, chief economist at JPMorgan, said Warsh left too much unclear.

"These comments seem to confirm suspicions that the task forces are just covers to redefine the inflation challenge away," Feroli said. "Both of these points raise questions about the new chair's credibility in delivering lower inflation. We believe this will add some urgency for the rest of the committee to act on its mandate."

Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance, she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.