WASHINGTON (AP) — Most Federal Reserve officials last month still regarded high inflation as an ongoing threat that could require further interest rate increases, according to the minutes of their July 25-26 meeting released Wednesday.

At the same time, the officials saw “a number of tentative signs that inflation pressures could be abating.” It was a mixed view that echoed Chair Jerome Powell’s noncommittal stance about future rate hikes at a news conference after the meeting.

According to the minutes, the Fed’s policymakers also said that despite signs of progress on inflation, it remained well above their 2% target. They “would need to see more data … to be confident that inflation pressures were abating” and on track to return to their target.

At the meeting, the Fed decided to raise its benchmark rate for the 11th time in 17 months in its ongoing drive to curb inflation. But in a statement after the meeting, it provided little guidance about when — or whether — it might raise rates again.

Most investors and economists have said they believe July’s rate hike will be the last. Earlier this week, economists at Goldman Sachs projected that the Fed will actually start to cut rates by the middle of next year.

Since last month’s Fed meeting, more data has pointed in the direction of a “soft landing,” in which the economy would slow enough to reduce inflation toward the central bank’s 2% target without falling into a deep recession. The Fed has raised its key rate to a 22-year high of about 5.4%.

Inflation has cooled further, according to the latest readings of “core” prices, a category that excludes volatile food and energy costs. Core prices rose 4.7% in July a year earlier, the smallest such increase since October 2021. Fed officials closely track core prices, which they believe provide a better read on underlying inflation.

Overall consumer prices rose 3.2% in July compared with a year earlier, above the previous month’s year-over-year pace because of higher gas and food costs. Still, that is far below the peak inflation rate of 9.1% in June 2022.

That progress has been made without the sharp increase in unemployment that many economists had expected would follow the Fed’s sharp series of interest rate hikes, the fastest in four decades. The unemployment rate actually ticked down to 3.5% in July, near the lowest level in a half-century.

Hiring has slowed, however, with employers having added 187,000 jobs in July, a solid gain but roughly one-third of the pace of monthly job growth earlier this year.

Still, the Fed now faces upticks in gas and some food prices, which could keep overall inflation from falling much further in the coming months. And rising costs for services, from auto insurance to restaurant meals to dental services, could keep core inflation persistently high.

In a sign that at least some officials think the Fed is nearing the end of its rate hikes, the minutes said “a number” of policymakers think their benchmark rate is high enough to restrain the economy.

These officials also think the risk of raising rates too high is roughly equal to the risk of not raising them high enough. That marks a significant shift from earlier this year, when the Fed routinely said the main risk was tilted toward not doing enough to slow borrowing and spending.

Data this week suggests that the economy, if anything, is picking up, which could keep inflation sticky at its current elevated level. Consumers are still spending at a healthy pace. A report Tuesday showed that retail sales rose faster than expected last month, fueled by rising online shopping and healthy sales at restaurants and bars, among other categories.

The strong sales figures “suggest a much more robust underpinning to the economy, certainly not what the Fed wants to see” as it seeks to slow inflation, said Quincy Krosby, chief global strategist for LPL Financial.

The Fed’s decision in July to raise rates for an 11th time was unanimous, a sign that the officials remain largely unified even as their decisions become more fraught. The minutes, though, said that two officials favored keeping the Fed’s rate unchanged last month, out of the 18 that took part in the meeting. At least one or both could be among the officials who lacked a vote last month. Only 11 officials currently vote on the Fed’s rate policies.

Since the meeting, Fed officials have expressed contrary views. On Tuesday, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said he wants the Fed to keep its options open for another rate hike.

“I’m not ready to say that we’re done, but I’m seeing positive signs that say, hey, we may be on our way,” Kashkari said. “We can take a little bit more time and get some more data in before we decide whether we need to do more.”

By contrast, Patrick Harker, president of the Philadelphia Fed, said he would support leaving rates unchanged for the rest of this year.

“Absent any alarming new data between now and mid-September,” Harker said, “I believe we may be at the point where we can be patient and hold rates steady.”

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NEW YORK (AP) — Stocks sank Tuesday after the head of the Federal Reserve warned it could turn the dial back up on its hikes to interest rates if pressure stays high on inflation. The warning shook markets and raised worries about a possible recession down the line.

The S&P 500 dropped 1.5% for one of its worst days of the year so far. The Dow Jones Industrial Average lost 574 points, or 1.7%, while the Nasdaq composite fell 1.2%.

Inflation and what the Fed is doing about it have been at the center of Wall Street’s sharp swings this year. After seeming to be on a steady decline since last summer, reports on inflation last month came in surprisingly hot. So did a suite of other data on the economy.

That raised fears that inflation is staying stickier than feared and that the Fed will have to raise rates higher than earlier thought. Higher rates can drag down inflation because they slow the economy, but they hurt prices for stocks and other investments. They also raise the risk of a recession later on.

The Fed’s chair, Jerome Powell, on Tuesday confirmed some of those fears and said the recent data mean “the ultimate level of interest rates is likely to be higher than previously anticipated.” He also said in his testimony to a Senate committee that the Fed is ready to increase the pace of its hikes again if needed.

That would be a sharp turnaround after it had just slowed its pace of increases to 0.25 percentage points last month from earlier hikes of 0.50 and 0.75 points.

“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell said. “Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time.”

After sitting at virtually unchanged levels just before Powell’s testimony, stocks fell immediately afterward.

“This is the market coming back to realistic expectations,” said Megan Horneman, chief investment officer at Verdence Capital Advisors. ”I think it’s going to continue to wash out some of the excesses in the market.”

Wall Street had already begun convincing itself that higher rates than earlier thought were on the way and that the Fed may even possibly go back to larger rate increases following last month’s data reports.

Since getting last month’s blowout jobs report and other surprisingly strong data, Wall Street largely abandoned hopes that percolated early this year for a possible cut to interest rates later in 2023. It also upped its forecast for how high the Fed will ultimately take rates before pausing.

That’s been most clear in the bond market, where the yield on the 10-year Treasury topped 4% last week and hit its highest level since November. It helps set rates for mortgages and other important loans.

On Tuesday, it again approached 4% after Powell’s comments before falling back to 3.97% from 3.96% late Monday.

The two-year Treasury yield, which moves more on expectations for the Fed, shot up to 5.01% from 4.87% and is at its highest level since 2007.

Traders now see a better than two-in-three chance the Fed will accelerate its rate hikes and raise by 0.50 percentage points on March 22. That’s a flip-flop from a day earlier, when the widespread bet was for the Fed to stick with a smaller increase of 0.25 points, according to data from CME Group.

“If they were to go 75 after pulling back to 25, that would spook the markets,” Horneman said. “I still think that they’re going to go 25, but if they go 50, I think it” would be seen as the Fed’s “being very flexible and can act quickly if needed if economic data tells them that.”

“If they articulate that, I think markets can accept that.”

More fireworks may arrive later this week and into next as the Fed gets more data points that will help shape its decision making ahead of its next meeting on interest rates.

On Friday will come the U.S. government’s monthly jobs report. Within that, most of the attention will be on how high wages are going for workers. The fear at the Fed is that too-strong gains could lead to more upward pressure on inflation.

Then two reports next week will give updates on how high inflation remains at both the consumer and at the wholesale levels.

The challenge for the market has been that the economy has actually been too strong, despite all the rate increases the Fed has thrown at it. While that resilience calms worries a recession may hit imminently, it likely means rates will need to stay higher for longer. That in turn raises the risk of a deeper recession down the line.

The big shifts among investors about where inflation and the Fed are heading have led to sharp movements for markets. In January, stocks rallied and bond yields eased as hope blossomed that inflation would cool and get the Fed to take it easier on interest rates. Then, last month’s torrent of strong data dashed those expectations and sent stocks falling and bond yields jumping.

All told, the S&P 500 fell 62.05 points Tuesday to 3,986.37. The Dow lost 574.98 to 32,856.46, and the Nasdaq sank 145.40 to 11,530.33.

One outlier was WW International, which better known as WeightWatchers. It soared 79.1% after saying it’s getting into the prescription weight loss business with the purchase of telehealth platform Sequence.

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