Fed officials were ‘less certain’ about the need for more interest rate hikes

Federal Reserve officials concluded the need to raise interest rates further had become “less certain” as economic risks mounted, although the US central bank remained open to additional rate hikes if needed, according to data from their latest meeting. warranted by

Minutes of the May meeting, when the Federal Open Market Committee recorded its 10th consecutive rate hike in just over a year, confirmed the US central bank is considering whether to pause its aggressive monetary tightening campaign. Because it assesses how much more it needs. Squeeze the economy to control inflation.

Citing both the “lagged effects” of monetary tightening by the Fed that has already been put on the train, as well as the specter of tighter credit conditions stemming from recent bank failures, participants “generally agreed that “to what extent the excess has increased.” A target range may be appropriate after this meeting to be less certain”.

The quarter-point increase in May lifted the federal funds rate to a new target range of 5-5.25 percent, the highest since mid-2007. The rate is in line with the highest level most officials have estimated since the estimates were last released in March.

The Fed said in March that an additional rate hike “may be appropriate” to reduce inflation. But this month’s guidance said officials would take into account incoming data and how much the hike has already affected the economy as they determine how high rate hikes will need to go.

Fed Chair Jay Powell described that change as “meaningful.” According to the minutes, many participants stressed the need for the Fed to “maintain optionality after this meeting”, with some believing that further action would be taken if inflation continued to gradually ease.

However, many officials stressed that if the economic outlook develops as expected, additional rate hikes will not be needed.

Fed staff expect a mild recession this year before the economy recovers, and minutes indicated that almost all officials saw lower prospects for lower growth and higher unemployment after recent bank failures.

Still, the Fed has said it does not plan to cut its policy rate this year.

Since the May meeting, officials have been embroiled in an intense debate about whether to increase the rate of deferment next month.

Fed Governor Christopher Waller said on Wednesday that economic data has not yet provided “enough clarity” about what officials should do at the June policy meeting. He said the decision is likely to come down to either raising the benchmark policy rate again or holding off on the meeting and considering an increase in July.

Many policymakers, including the Dallas Fed’s Laurie Logan and Fed Governor Michelle Bowman, recently appeared to agree, arguing that the data did not show a substantial decline in inflation to prevent a rebound. St. Louis Fed President James Bullard also recently told the Financial Times that higher interest rates are likely to be needed as “insurance” against further escalation of price pressures.

But Powell indicated last week that he favors skipping another rate hike in June. Governor Philip Jefferson, who was recently tapped by the Biden administration to serve as the Fed’s next vice chairman, also stressed that the effects of the central bank’s efforts to slow the economy are “still were likely ahead of us”.

Ahead of the next two-day FOMC meeting beginning June 13, the Fed will receive even more economic data, including monthly jobs data as well as the latest reading on inflation.