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    Meet the Man Making Big Banks Tremble

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    Michael Barr, whom President Biden appointed as the Federal Reserve’s top bank cop, has drawn blowback for his bank regulation push.Yelling at Michael Barr, the Federal Reserve’s top banking regulator, has never been particularly effective, his friends and co-workers will tell you. That hasn’t stopped America’s biggest banks, their lobbying groups and even his own colleagues, who have reacted to his proposal to tighten and expand oversight of the nation’s large lenders with a mix of incredulity and outrage.“There is no justification for significant increases in capital at the largest U.S. banks,” Kevin Fromer, the president of the Financial Services Forum, said in a statement after regulators released the draft rules spearheaded by Mr. Barr. The proposal would push up the amount of easy-access money that banks need to have at the ready, potentially cutting into their profits.Even before its release, rumors of what the draft contained triggered a lobbying blitz: Bank of America’s lobbyists and those affiliated with banks including BNP Paribas, HSBC and TD Bank descended on Capitol Hill. Lawmakers sent worried letters to the Fed and peppered its officials with questions about what the proposal would contain.The Bank Policy Institute, a trade group, recently rolled out a national ad campaign urging Americans to “demand answers” on the Fed’s new capital rules. On Tuesday, the organization and other trade groups appeared to lay the groundwork to sue over the proposal, arguing that the Fed violated the law by relying on analysis that was not made public.Some of Mr. Barr’s own colleagues have opposed the proposed changes: Two of the Fed’s seven governors, both Trump appointees, voted against them in a stark sign of discord at the consensus-oriented institution.“The costs of this proposal, if implemented in its current form, would be substantial,” Michelle Bowman, a Fed governor and an increasingly frequent critic of Mr. Barr’s, wrote in a statement.The reason for all of the drama is that the proposal — which the Fed released alongside two other banking agencies — would notably tighten the rules for both America’s largest banks and their slightly smaller counterparts.Michelle Bowman, a Fed governor, has become increasingly critical of Mr. Barr. Ann Saphir/ReutersIf adopted, it would mark both the completion of a process toward tighter bank oversight that started in the wake of the 2008 financial crisis and the beginning of the government’s regulatory response to a series of painful bank blowups this year.For the eight largest banks, the new proposal could raise capital requirements to about 14 percent on average, from about 12 percent now. And for banks with more than $100 billion in assets, it would strengthen oversight in a push that has been galvanized by the implosion of Silicon Valley Bank in March. Lenders of its size faced less oversight because they were not viewed as a huge risk to the banking system if they collapsed. The bank’s implosion required a sweeping government intervention, proving that theory wrong.Mr. Barr does not seem, at first glance, like someone who would be the main character in a regulatory knife fight.The Biden administration nominated him to his role, and Democrats tend to favor tighter financial rules — so he was always expected to be harder on banks than his predecessor, a Trump nominee. But the Fed’s vice chair for supervision, who was confirmed to his job in July 2022, has a knack for coming off as unobtrusive in public: He talks softly and has a habit of smiling as he speaks, even when challenged.If the proposal is adopted, it would mark both the completion of a process toward tighter bank oversight that started in the wake of the 2008 financial crisis and the beginning of the government’s regulatory response to a series of bank blowups earlier this year.Stephen Crowley/The New York TimesAnd Mr. Barr came into his job with a reputation — correct or not — for being somewhat moderate. As a top Treasury official, he helped design the Obama administration’s regulatory response to the 2008 financial crisis and then negotiated what would become the 2010 Dodd-Frank law.The changes that he and his colleagues won drastically ramped up bank oversight — but the Treasury Department, then led by Secretary Timothy Geithner, was often criticized by progressives for being too easy on Wall Street.That legacy has, at times, dogged Mr. Barr. He was in the running for a seat on the Fed’s Board of Governors in 2014, but progressive groups opposed him. When he was floated as the likely candidate to lead the Office of the Comptroller of the Currency in 2021, a similar chorus objected, with powerful Democrats including Senator Sherrod Brown, the chair of the Banking Committee, lining up behind another candidate.Mr. Barr’s chance to break back into Washington policy circles came when Sarah Bloom Raskin, a law professor nominated for vice chair for supervision at the Fed, was forced to drop out. In need of a new candidate, the Biden administration tapped Mr. Barr.Suddenly, the fact that he had just been accused of being too centrist to lead the Office of the Comptroller of the Currency was a boon. He needed a simple majority in the 100-seat Senate to pass, and received 66 votes.By then, the idea that he would have a mild touch had taken hold. Analysts predicted “targeted tweaks” to regulation on his watch. But banks and some lawmakers have found plenty of reasons to complain about him in the 14 months since.Wall Street knew that Mr. Barr would need to carry out the U.S. version of global rules developed by an international group called the Basel Committee on Banking Supervision. Banks initially expected the American version to look similar to, perhaps even gentler than, the international standard.But by early this year, rumors were swirling that Mr. Barr’s approach might be tougher. Then came the collapse this spring of Silicon Valley Bank and other regional lenders — whose rules had been loosened under the Trump administration. That seemed destined to result in even tighter rules.In one of his first acts as vice chair, Mr. Barr wrote a scathing internal review of what had happened, concluding that “regulatory standards for SVB were too low” and bluntly criticizing the Fed’s own oversight of the institution and its peers.Mr. Barr’s conclusions drew some pushback: Ms. Bowman said his review relied “on a limited number of unattributed source interviews” and “was the product of one board member, and was not reviewed by the other members of the board prior to its publication.”But that did little to stop the momentum toward more intense regulation.When Jerome H. Powell, the Fed chair, gave his regular testimony on the economy before Congress in June, at least six Republicans brought up the potential for tighter regulation, with several warning against going too far.After Silicon Valley Bank and other regional lenders collapsed this spring, Mr. Barr wrote a scathing internal review concluding that “regulatory standards for SVB were too low.” Jim Wilson/The New York TimesAnd when the proposal was finally released in July, it was clear why banks and their allies had worried. The details were meaningful. One tweak would make it harder for banks to game their assessments of their own operational risks — which include things like lawsuits. Both that and other measures would prod banks to hold more capital.The plan would also force large banks to treat some — mostly larger — residential mortgages as a riskier asset. That raised concerns not just from the banks but from progressive Democrats and fair housing groups, who worried that it could discourage lending to low-income areas. News of the measure came late in the process — surprising even some in the White House, according to people familiar with the matter.Representative Andy Barr, a Kentucky Republican, said that aspects of the proposal went beyond the international standard, which “caught a lot of people off guard,” and that the Fed had not provided a clear cost-benefit analysis.“Vice Chair Barr is using some of the bank failures as a pretext,” he said.The banks “feel like he’s being obstinate,” said Ian Katz, an analyst at Capital Alpha Partners, a research firm in Washington. “They feel like he’s the guy making the decisions, and there are not a lot of workarounds.”Andrew Cecere, the chief executive of U.S. Bancorp, said of Mr. Barr, “We may not agree on everything, but he tries to understand.”Andrew Harnik/Associated PressBut he does have fans. Andrew Cecere, the chief executive of U.S. Bancorp and a member of a Fed advisory council, said Mr. Barr was “quite collaborative” and “a good listener.”“We may not agree on everything, but he tries to understand,” Mr. Cecere said.The Fed did not provide a comment for this article.The question now is whether the proposal will change before it is final: Bankers have until Nov. 30 to offer suggestions for how to adjust it. Colleagues who worked with Mr. Barr the last time he was reshaping America’s bank regulations — in the wake of the 2008 financial collapse — suggested that he could be willing to negotiate but not when he viewed something as essential.Amias Gerety, a Treasury official during the Obama administration, joined him and other government policymakers for those discussions over consumer protection and big bank oversight. He watched Mr. Barr leave some ideas on the cutting-room floor (such as an online marketplace that would allow consumers to compare credit card terms), while fighting aggressively for others (such as a powerful structure for the then-nascent Consumer Financial Protection Bureau).When people disagreed with Mr. Barr, even loudly, he would politely listen — often before forging ahead with the plan he thought was best.“Sometimes to his detriment, Michael is who he is,” Mr. Gerety said. “He is very willing to sacrifice small-p interpersonal politics to achieve policy goals that he thinks are good for people.”Some tweaks to the current proposal are expected: The residential mortgage suggestion is getting a closer look, for instance. But several analysts said they expected the final rule to remain toothy.In the meantime, Mr. Barr appears to have shaken his reputation for mildness. Dean Baker, an economist at a progressive think tank who, in 2014, was quoted in a news article saying Mr. Barr could not “really be trusted to go after the industry,” said his view had shifted.“I definitely have had a better impression of him over the years,” Mr. Baker said. More

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    Wages Rose Only 0.2% in August, Easing Inflation Fears

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    American workers got smaller pay increases in August. That could be welcome news for policymakers at the Federal Reserve.Average hourly earnings rose 0.2 percent from July, the slowest pace of monthly growth since early last year. Pay was up 4.3 percent from a year earlier, versus a peak growth rate of nearly 6 percent in March 2022.The earnings data is preliminary and can be skewed by shifts in the industries that are hiring, among other factors. But the slowdown in wage gains is consistent with other evidence suggesting a gradual cooling in the labor market. Employers are posting fewer job openings — a sign of reduced demand for labor — and workers are changing jobs less frequently, a sign they are also becoming more cautious.For workers, the pain of slower wage growth is being offset, at least to some degree, by cooling inflation. Price increases outpaced pay gains for much of last year, but that trend has since reversed. Pay, adjusted for inflation, has risen in recent months; the Labor Department will release August price data later this month.For policymakers, a cooler pace of wage growth — if it is sustained — would be an encouraging sign that the labor market is coming off the boil. Fed officials have been worried that rapid wage gains, while not responsible for the recent increase in prices, could make it difficult for inflation to return to their long-term goal of 2 percent per year. The data released Friday suggests that the labor market is returning to balance — though hourly earnings are still rising faster than many economists consider sustainable in the long term.“While wage growth remains well above the Fed’s comfort zone, recent data points to a gentle moderation in labor cost pressures amid signs of labor market rebalancing,” Gregory Daco, chief economist for EY, wrote in a note to clients. More

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    Fed Officials Will Parse Jobs Numbers to Assess Economy’s Momentum

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    Federal Reserve officials are likely to closely watch employment numbers on Friday for further signs that the economy’s momentum is slowing, an important consideration for them in deciding whether to lift interest rates further.Fed policymakers have sharply increased borrowing costs over the past year and a half, to a range of 5.25 to 5.5 percent, from near-zero as recently as March 2022. Those moves were meant to slow the economy by making it more expensive to borrow to buy a house, purchase a car or expand a business.Now, central bankers are contemplating whether they need to raise interest rates one more time. Policymakers had previously forecast another move before the end of 2023.Most investors do not expect any increase to come at the Fed’s next meeting on Sept. 19-20, but officials have not ruled out a move. And even if central bankers leave rates unchanged in September as markets expect, policymakers will release a fresh set of economic projections showing how they expect the labor market, inflation and interest rates to shape up over coming months and years.That’s where incoming data reports — including the fresh jobs figures — could matter. Employers have been hiring at a surprisingly steady clip this year, given how much the Fed has raised interest rates. Policymakers will be gauging whether that trend continues to slow.And Fed officials will devote attention to how quickly wages are climbing.Central bankers have de-emphasized pay gains as a potential driver of inflation in recent months, suggesting instead that rapid wage growth probably signals that workers are trying to catch up with past inflation. Even so, many standard economic models suggest that if pay is climbing steeply, it could be hard to fully snuff out rapid inflation. Companies facing heftier labor costs will probably try to charge more to protect their profits, and workers who are earning more may find themselves capable of and willing to pay higher prices.Jerome H. Powell, the Fed chair, recently highlighted slowing jobs growth, stable hours worked and slowing pay gains across a range of measures as signs that the labor market is getting into a better balance.“We expect this labor market rebalancing to continue,” he said, speaking last week in Wyoming. But, he warned in the speech, the Fed is watching to make sure the economy doesn’t heat back up in spite of higher interest rates, a development that could mean that borrowing costs need to go higher.“Evidence that the tightness in the labor market is no longer easing could also call for a monetary policy response,” Mr. Powell said. More

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    The Fed’s Preferred Inflation Gauge Ticked Up in July

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    Overall inflation climbed to 3.3 percent, from 3 percent previously, underscoring the Fed’s long road back to 2 percent price increases.The Federal Reserve has warned for months that wrestling rapid inflation back to a normal pace was likely to be a bumpy process, a reality underscored by fresh data on Thursday that showed a closely watched inflation gauge picking back up in July.The Personal Consumption Expenditures index climbed 3.3 percent in the year through July, up from 3 percent in the previous reading. While that is down from a peak last summer of 7 percent, it is still well above the 2 percent growth rate that the Fed targets.Central bankers tend to more closely monitor a measure of core inflation that strips out volatile food and fuel prices to give a clearer sense of the underlying price trend. That measure also climbed, touching 4.2 percent after 4.1 percent the previous month.Inflation is expected to slow later this year and into 2024, so Thursday’s report marks a bump in the road rather than a reversal of recent progress toward cooler prices. But as inflation figures bounce around, Fed officials have been hesitant to declare victory.Their wariness has only been reinforced by other recent economic data, which has shown that the economy retains a surprising amount of momentum after a year and half in which Fed policymakers have ratcheted up interest rates. The Fed’s policy rate is now set at 5.25 to 5.5 percent, up from near-zero in March 2022, which is making it more expensive to borrow to buy a house or car or to expand a business.Despite that, the job market has remained strong and consumers continue to shop. An employment report set for release on Friday is expected to show that while businesses added fewer jobs in August, the unemployment rate remained very low at 3.5 percent. And fresh consumption data released Thursday showed that Americans continued to open their wallets: Personal spending climbed by 0.8 percent in July from the month before, more than economists expected and a solid pace. Even after adjusting for inflation, it was up 0.6 percent, a pop from 0.4 percent in the previous report.The tick higher in P.C.E. inflation was widely expected: Various data points that feed into the number, including the Consumer Price Index inflation report, come out earlier in the month. Even so, the measure remains a point of focus on Wall Street and in policy circles because it is the one the Fed uses to define its official inflation goal.Fed officials will be watching data over the next few weeks as they consider what to do with interest rates at their meeting on Sept. 20. Policymakers have said that the meeting is a “live” one, meaning that they could either lift interest rates or keep them on hold, but several have suggested that at this point they feel that they can be patient in making a move.“Given how far we have come, at upcoming meetings we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” Jerome H. Powell, the Fed chair, said in a high-profile speech last week.Many investors do anticipate a final rate increase later this year, but later on — perhaps at the central bank’s November gathering. And even if the Fed does not lift borrowing costs in a few weeks, policymakers will release a fresh set of economic projections that will show both whether they expect to nudge rates higher and by how much they expect inflation to slow both by the end of 2023 and into 2024. More

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    Job Openings Dropped in July as Labor Market Cooled

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    The NewsThe number of job openings continued to drop in July, the Labor Department reported Tuesday, another sign that the U.S. labor market is losing its momentum.There were 8.8 million job openings last month, down from about 9.2 million in June and the lowest level since March 2021, according to the Job Openings and Labor Turnover Survey. The amount of people quitting their jobs, a measure of workers’ confidence in the job market, continued to nudge down in July as well.A job fair in Minneapolis last month.Tim Gruber for The New York TimesWhy It Matters: Implications for interest-rate policy.Labor market data is closely watched by policymakers at the Federal Reserve as they combat stubborn inflation.“For workers, this looks like fewer opportunities — if you leave your job now, you’re less likely to land a better one than you were last year at this time,” Elizabeth Renter, a data analyst at the personal finance site NerdWallet, said in an email statement. “For the Fed, this likely looks according to plan.”Fed policymakers lifted interest rates to a range of 5.25 to 5.5 percent in their last meeting in July, the highest since 2001. Only one Fed meeting has passed since March 2022 where the central bank has not raised rates. Some investors hope that signs the labor market is continuing to cool will push the Fed to end its campaign of rate increases sooner.Jerome H. Powell, the chair of the Federal Reserve, signaled on Friday that the central bank was not ruling out more rate increases.“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” Mr. Powell said at the Federal Reserve Bank of Kansas City’s annual Jackson Hole conference in Wyoming.The new data is likely to be welcomed by the Fed, said Layla O’Kane, a senior economist at Lightcast, a labor market analytics firm. It shows that what the Fed has been doing is working, but policymakers are not likely to declare their mission accomplished just yet, she said.“This is a really good sign for a cooling labor market, but it’s not a cool labor market yet,” Ms. O’Kane said. “There’s some way to go before we think we solved some of the labor market tightness.”Background: A surprisingly robust labor market.The U.S. labor market has defied expectations by remaining strong despite the Fed’s mission to slow down the economy by raising interest rates.Consistently strong labor data initially fueled predictions that the Fed would continue rate increases until the economy fell into a recession. Many have taken a more optimistic view recently as inflation has begun to moderate alongside a strong labor market.Employers are starting to feel the effects of high interest rates, said Julia Pollak, chief economist at ZipRecruiter. Companies are being more judicious in their hiring even if they need more people, in part because of the high cost of labor, she said.“With interest rates this high, some investments don’t pencil out,” Ms. Pollak said. “Businesses that would have opened another location or invested in another truck or another warehouse are taking it slow.”What’s Next: The August jobs report on Friday.The August employment report will be released by the Labor Department on Friday.The unemployment rate dropped to 3.5 percent in July, a sign that although the labor market is cooling, workers are generally still able to find opportunities. The unemployment data for August will be one of the last labor market pulses that Fed policymakers will get before their next meeting on Sept. 19-20. More

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    How the Jackson Hole Conference Became an Economic Obsession

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    Investors and economists are watching the event this week closely. How did a remote Wyoming conference become so central?Filmmakers have Cannes. Billionaires have Davos. Economists? They have Jackson Hole.The world’s most exclusive economic get-together takes place this week in the valley at the base of the Teton mountains, in a lodge that is a scenic 34 miles from Jackson, Wyo.Here, in a western-chic hotel that was donated to the national park that surrounds it by a member of the Rockefeller family, about 120 economists descend late each August to discuss a set of curated papers centered on a policy-relevant theme. Top officials from around the world can often be found gazing out the lobby’s floor-to-ceiling windows — likely hoping for a moose sighting — or debating the merits of a given inflation model over huckleberry cocktails.This shindig, while a nerdy one, has become a key focus of Wall Street investors, academics and the press. The conference’s host, the Federal Reserve Bank of Kansas City, seems to know a thing or two about the laws of supply and demand: It invites way fewer people than would like to attend, which only serves to bid up its prestige. But even more critically, Jackson Hole tends to generate big news.The most hotly anticipated event is a speech by the Fed chair that typically takes place on Friday morning and is often used as a chance for the central bank to send a signal about policy. Jerome H. Powell, the current Fed head, has made headlines with each and every one of his Jackson Hole speeches, which has investors waiting anxiously for this year’s. It is the only part of the closed-door conference that is broadcast to the public.Mr. Powell will be speaking at a moment when the Fed’s next moves are uncertain as inflation moderates but the economy retains a surprising amount of momentum. Wall Street is trying to figure out whether Fed officials think that they need to raise interest rates more this year, and if so, whether that move is likely to come in September. So far, policymakers have given little clear signal about their plans. They have lifted interest rates to 5.25 to 5.5 percent from near zero in March 2022, and have left their options open to do more.People will pay close attention to Mr. Powell’s speech, but “I think it’s about the tone,” said Seth Carpenter, a former Fed economist who is now at Morgan Stanley. “What I don’t think he wants to do is signal or commit to any near-term policy moves.”For all of its modern renown, the Jackson Hole conference, set for Thursday night to Saturday, has not always been the talk of the town in Washington and New York. Here’s how it became what it is today.It’s set in the formerly wild West.Jackson used to play host to a very different cast of characters: The town was once so remote that it was a go-to hideaway for outlaws.In 1920, when Jackson’s population was about 300, The New York Times harked back to a not-so-distant era when “whenever a serious crime was committed between the Mississippi River and the Pacific Coast, it was pretty safe to guess that the man responsible for it was either headed for Jackson’s Hole or already had reached it.”Jackson’s seclusion also meant that the area’s towering, craggy mountains and rolling valley remained pristine, making it prime territory for conservationists. The financier and philanthropist John D. Rockefeller Jr. stealthily acquired and then donated much of the land that would eventually become the Jackson Hole section of Grand Teton National Park. And around 1950, he began to construct the Jackson Lake Lodge.The lodge’s modern architecture was not initially beloved by the locals. (“‘A slab-sided, concrete abomination’ is one of the milder epithets tossed at the massive structure,” The Times quipped in 1955.) Among other complaints, Rockefeller’s donation to the park lacked resort perks: no golf course, no spa.But by 1982, its ample space and sweeping vistas had caught the eye of the Kansas City Fed, which was looking for a new location for a conference it had begun to hold in 1978.The gathering has happened there since 1982.The Jackson Lake Lodge was built by the financier John D. Rockefeller Jr. on land he had donated to Grand Teton National Park.David Paul Morris/BloombergHigh on its list of charms, the Jackson Lake Lodge was close to excellent fly fishing — a surefire way to appeal to the Fed chair at the time, Paul A. Volcker. He came, and between the A-list attendees and the location’s natural beauty, Jackson Hole quickly became the Fed event of the year.“About one-half of the 137 people invited this year attended, a remarkably high response,” The Times reported in 1985.The size of the conference has not changed much since: It averages about 115 to 120 attendees per year, according to the Kansas City Fed. The response rate has gone up markedly since 1985, though the Fed branch declined to specify how much.But the local context has shifted.Teton County, home to Jackson (now a bustling town of 11,000) and Jackson Hole, hosts more millionaires than criminal cowboys these days. It has become the most unequal place in America by several measures, with gaping wealth and income divides. The event, billed as rustic, now struggles to pretend that its backdrop isn’t posh.And the Fed gathering itself has gained more and more cachet. Alan Greenspan delivered the opening speech at the conference in Jackson Hole in 1991, when he was Fed chair, and then kept up that tradition for 14 summers until he stepped down.His successors have mostly followed suit. Mr. Powell has used his speeches to caution against overreliance on hard-to-determine economic variables, to unveil an entirely new framework for monetary policy and to pledge that the Fed would do what it took to wrangle rapid inflation.But it’s changing.Attention to Jackson Hole also deepened because of the 2008 global financial crisis, when central banks rescued markets and propped up economies in ways that expanded their influence. In the years that followed, uninvited journalists, Wall Street analysts and protest groups began to camp out in the lodge’s lobby during proceedings. Speaking at or presiding over a Jackson Hole session increasingly marked an economist as an academic rock star.Esther George, president of the Kansas City Fed between 2011 and early 2023, was in charge as the event garnered more notice. She and her team responded to the intensified spotlight partly by shaking up who got to bask in it.Far fewer banking and finance industry economists have gotten invites to the event since 2014, partly in response to public attention to the Fed’s Wall Street connections after the financial crisis. The people who make the list tend to be current and former top economic officials and up-and-coming academics. Increasingly, they are women, people from racially diverse backgrounds and people with varying economic viewpoints.Ms. George started to hold an informal happy hour for female economists in 2012, when there were so few women that “we could all sit around a small table,” she recalled. It made her think: “Why aren’t these other voices here?”Last year, the happy hour included dozens of women.But the Jackson Hole conference could be entering a new era. Ms. George had to retire in 2023 per Fed rules, so while she helped to plan this conference, she’ll be passing the baton for future events to her successor, Jeffrey Schmid, a university administrator and former chief executive of Mutual of Omaha Bank. He started as Kansas City Fed president on Monday and will make his debut as a Fed official at the gathering this week. More

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    Fed Officials Avoided a Victory Lap at July Meeting

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    Federal Reserve officials raised interest rate at their July 26 meeting, and freshly released minutes showed they remained focused on inflation risks.Federal Reserve officials welcomed a recent slowdown in inflation at their July meeting, minutes released on Wednesday showed, but they stopped short of declaring victory. Instead, officials stressed that inflation remained “unacceptably” high and “most” saw continued risks of higher inflation that might prod the central bank to raise interest rates further.Fed policymakers raised interest rates to a range of 5.25 to 5.5 percent on July 26, the highest since 2001. Officials have lifted borrowing costs sharply over the past 17 months — first adjusting them rapidly, and more recently at a slower pace — to slow the economy. By making it more expensive to borrow and spend, they have been hoping to cool demand and wrangle inflation.But given how much rates have risen in recent months and how much inflation has recently cooled, investors have been questioning whether policymakers are likely to lift borrowing costs again. Inflation eased to 3.2 percent in July on an overall basis, down sharply from a high of more than 9 percent in mid-2022.Officials at the Fed meeting did welcome recent progress on slowing price increases, but many of them stopped short of signaling that it could prompt them to back down on their campaign to cool the economy. The minutes showed that “a couple” of the Fed’s policymakers did not want to raise interest rates in July, but most supported the move — and suggested that there could still be further adjustment ahead.“Participants noted the recent reduction in total and core inflation rates” but stressed that “inflation remained unacceptably high and that further evidence would be required for them to be confident that inflation was clearly on a path” back to normal, the minutes showed.With inflation still unusually high and the labor market strong, “most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” the minutes added.Still, Fed officials did acknowledge that they would need to take the potential costs to the economy into account. Higher interest rates can slow hiring sharply, partly by making it more expensive for companies to get business loans, potentially pushing up unemployment and even tipping the economy into a recession.“It was important that the committee’s decisions balance the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening,” a “number” of policymakers noted.Fed officials are facing a complicated economic picture as they try to assess whether they have sufficiently adjusted policy to return inflation to 2 percent over time. On one hand, the job market shows signs of cooling and the rate moves that the Fed has already made are still slowly trickling out to restrain the economy. Yet consumer spending remains surprisingly strong, unemployment is very low, and wage growth is solid — momentum that could give companies the wherewithal to charge their customers more.Officials noted that there was a “high degree of uncertainty” about how much the moves they have already made will continue to temper demand. Financial conditions are tight, meaning it is tough and expensive to borrow, which officials thought could weigh on consumption. At the same time, the housing market seems to be stabilizing, and some officials suggested that “the housing sector’s response to monetary policy restraint may have peaked.”The resilience of the economy has prompted the Fed’s staff economists — an influential bunch of analysts whose forecasts inform policymakers — to revisit their previous expectation that the economy would fall into a mild recession late this year.“Indicators of spending and real activity had come in stronger than anticipated; as a result, the staff no longer judged that the economy would enter a mild recession toward the end of the year,” the minutes said. They did still expect a “small increase in the unemployment rate relative to its current level” in 2024 and 2025.It is tricky to guess how quickly inflation will slow going forward, because there are a lot of moving parts. For instance, cheaper gas had been helping to drag price increases lower — but gas costs began to rebound in the second half of July, a trend that has continued into August.At the same time, rental costs continue to ease in official inflation data, which should help calm the overall numbers. And China is growing more slowly than many economists had expected, which could help weigh on global commodity prices and slow American inflation around the edges.“Participants cited a number of tentative signs that inflation pressures could be abating,” the minutes showed. Those included softer increases in goods prices, slowing online price gains, and “evidence that firms were raising prices by smaller amounts than previously,” among other factors.Fed officials have also been shrinking their balance sheet of bond holdings, a process that can take some steam out of asset prices but that will also leave the central bank with a smaller footprint in financial markets. Officials suggested in the minutes that the process of winnowing it could continue even after interest rates begin to come down, something they have forecast to begin next year — illustrating their continued commitment to paring back their holdings.“A number of participants noted that balance sheet runoff need not end when the Committee eventually begins to reduce the target range for the federal funds rate,” the minutes said.Joe Rennison More