Policymakers supported raising interest rates at their next July meeting by 50 or 75 basis points, according to the minutes of the June Fed meeting.
Federal Reserve officials agreed last month that interest rates may have to continue to rise for longer to prevent higher inflation from settling, even if that slowed the U.S. economy.
Politicians supported raising rates at their next July meeting by 50 or 75 basis points, according to the minutes of the Federal Open Market Committee’s policy meeting June 14-15 published Wednesday in Washington. They considered it crucial to maintain the central bank’s credibility to control inflation.
“Many participants judged that a major risk the committee now faces was that high inflation could be entrenched if the public began to question the committee’s decision to adjust the policy position as justified,” he shows. the minutes.
Officials also “acknowledged that political consolidation could slow the pace of economic growth for a while, but saw the return of inflation to 2% as key to achieving maximum employment on a sustained basis.”
The Fed’s aggressive push to curb higher inflation over the past 40 years has shaken financial markets, as investors worry that tighter monetary policy will bring the U.S. economy down in the recession.
Officials raised rates by 75 basis points in June, the highest since 1994, raising their benchmark to a target range of 1.5% to 1.75%, and President Jerome Powell went suggest they could do the same again in July.
He told reporters at a post-meeting press conference that another 75 basis point increase, or a 50 basis point move, was most likely on the table when policymakers meet from July 26-27.
Officials rose in June, although they had previously indicated they were in favor of a 50 basis point rise, after inflation data hit the heat and a key indicator hinted that expectations of future price pressures they could be accelerating among American consumers.
Kansas City Fed Chairman Esther George, who disagreed with the increase in favor of a smaller rise, was the only one of the 18 policymakers who did not fall back 75 basis points in June, according to the ‘act.
Central banks in June “recognized the possibility that an even more restrictive stance could be appropriate if high inflationary pressures persist,” the minutes said.
Politicians noted that “if inflation expectations were not substantiated, it would be more costly to return inflation to the committee’s target.”
Several officials since that meeting have echoed Powell’s characterization of the likely outcome of the July rate decision, though fears of recession are mounting.
The personal consumer spending price index, which the Fed uses for its inflation target, has risen 6.3% since May 2021, more than three times the central bank’s 2% target.
Powell said there are ways to reduce inflation while keeping the labor market strong, but acknowledged it will be a challenge.
Economists have lowered their growth forecasts as a result of data showing weak consumer spending, tightening financial conditions and a decline in U.S. manufacturing activity.
Mortgage rates, which have doubled since the beginning of the year, are also cooling the housing market and some businesses are experiencing lower demand.
According to Bloomberg Economics, the odds of a recession in the United States next year are now about one in three. A similar pessimism is evident in future interest rate markets: investors are betting that the Fed will reverse the course next year, stop rate hikes earlier than expected by officials, and begin cutting rates in mid-2023.