Federal Reserve officials were unanimous in their decision to raise interest rates earlier this month, but were at odds over whether further hikes would be necessary to bring inflation under control. Minutes from the last Fed meeting released on Wednesday.
The Fed voted yes raise interest rates by a quarter point May 3 to a range of 5 to 5.25 percent, the tenth consecutive hike by the central bank started his campaign to keep up with last year’s inflation. Although officials left the door open to further rate hikes, the minutes clearly show that “several” policymakers were leaning toward a pause.
“Several participants noted that if the economy developed in line with their current outlook, then further policy tightening after this meeting may not be necessary,” the minutes said.
Still, some officials believed that “further policy tightening is likely to be warranted at future meetings” as progress in returning inflation back to the central bank’s 2 percent target may continue to be “unacceptably slow.”
Policymakers believed the Fed’s actions over the past year had contributed significantly to tighter financial conditions and noted that labor market conditions were beginning to ease. But they agreed that the job market is still too hot strong gains in job growth and unemployment rates near historic lows.
Officials also agreed that inflation was “unacceptably high”. Although price increases do showed signs of moderation in recent months, declines have been slower than officials expected, and officials have worried that consumer spending may remain strong and keep inflation high. Some noted that tighter credit conditions could slow household spending and dampen business investment.
Fed officials believed that the US banking system was “sound and resilient” after the collapses. Silicon Valley Bank and Signature Bank this year led to turbulence in the banking sector. Although they noted that banks may be pulling back on lending, policymakers said it was too early to tell how much of an impact credit tightening might have on the overall economy.
One source of concern for policymakers has been outrage over the national debt limit, which limits how much money the United States can borrow. If the cap is not raised by June 1, the Treasury may not be able to pay all of its bills on time, resulting in a default. Many officials said it was “essential that the debt limit be raised in time” to avoid the risk of serious damage to the economy and turmoil in financial markets.
The central bank’s next move remains uncertain, with politicians continuing to keep their options open ahead of the June meeting.
Lorie Logan, president of the Dallas Fed, said last week that another rate hike in June could be possible based on recent data. Still, she acknowledged it was too early to tell.
“Data in the coming weeks could yet show that it is appropriate to skip the meeting,” Ms Logan said in a speech on Thursday. “But as of today, we’re not there yet.”
Minneapolis Fed President Neel Kashkari in an interview for The Wall Street Journal last week he said he might support keeping rates at the same level at a June 13-14 meeting to give policymakers more time to assess how the economy is shaping up.
“I’m open to the idea that we can move a little more slowly from here,” he said.
Officials reiterated that they will continue to monitor incoming data before reaching a decision. On Friday, the Commerce Department will release new data on the personal consumption expenditure index, the Fed’s preferred gauge of inflation. Early next month, the federal government will also release new data on job growth in May.
