Federal Reserve officials were divided over the need for more interest rate hikes at the US central bank’s July 25-26 meeting, with “some participants” citing the risks to the economy of pushing rates too far even as “most” policymakers continued to prioritise the battle against inflation, according to minutes of the session that were released on Wednesday.
“Participants remained resolute in their commitment to bring inflation down to the … 2 per cent objective,” the minutes said of a meeting in which policymakers on the Federal Open Market Committee unanimously agreed to raise the benchmark overnight interest rate to the 5.25 per cent-5.50 per cent range. “Most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.”
Yet cautionary voices about the effects of continued monetary tightening appeared to play a more prominent role in the debate at last month’s policy meeting, an indication that the spread of opinion at the Fed has widened as policymakers weigh evidence that inflation is falling and judge the potential damage to jobs and economic growth if rates are raised higher than necessary.
A “couple” of participants, for example, advocated leaving rates unchanged in July.
The group also “discussed several risk-management considerations that could bear on future policy decisions,” the minutes said. Though a majority kept inflation as the paramount risk, “some participants commented that even though economic activity had been resilient and the labor market had remained strong, there continued to be downside risks to economic activity and upside risks to the unemployment rate.”
“These included the possibility that the macroeconomic effects of the tightening in financial conditions since the beginning of last year could prove more substantial than anticipated.”
In general, the minutes said, Fed policymakers agreed that the level of uncertainty remained high, and that future rate decisions would depend on the “totality” of data arriving in “coming months” to “help clarify the extent to which the disinflation process was continuing” – a possible indication of a more patient approach to any further rate increases.
The July meeting was held before the release of data that showed key price measures falling this summer alongside ebbing job creation.
Investors in contracts tied to the federal funds rate are betting heavily that the Fed won’t raise its benchmark rate again during the current tightening cycle, and as of Wednesday morning had put a 90 per cent chance on the prospect that the central bank would leave rates unchanged at its Sept. 19-20 meeting.