While the Federal Reserve delivered a reprieve from its interest rate hike campaign last month, the decision didn’t come lightly, as minutes from the most recent Fed meeting suggest that policymakers were divided on whether or not to continue raising rates.
While Fed officials ultimately decided against raising rates last month, the minutes of officials’ June meeting, released Wednesday, indicated that several of the 18 voting and nonvoting officials at the meeting would have agreed to raise rates.
“Some participants indicated that they favored raising the target range for the federal funds rate 25 basis points at this meeting or that they could have supported such a proposal,” the minutes said.
The meeting minutes—which do not attribute comments or ideas directly to individual members—pointed out that those who would have supported another rate hike last month would have done so because “momentum in economic activity had been stronger than earlier anticipated, and there were few clear signs that inflation was on a path to return to the Committee’s 2% objective over time.”
Inflation remained elevated and well above the Fed’s 2% benchmark. However, recent data provided favorable signs that inflation has continued to cool.
While the latest Consumer Price Index (CPI) showed cooling inflation, Fed officials voiced concerns over inflation maintaining its elevated levels. The report showed that inflation hit its lowest levels in over two years at 4%.
The personal consumption expenditure (PCE) index—the Fed’s preferred inflation measurement—also showed that inflation had eased since the middle of last year.
Recent reports showed that core PCE price inflation—everything except volatile food and energy—increased by 4.6% from a year earlier annually in May.
“In their consideration of appropriate monetary policy actions at this meeting, participants concurred that while inflation had moderated since the middle of 2022, it remained well above the Committee’s longer-run goal of 2%”, the minutes said.
Ultimately, the Fed agreed to maintain the current federal funds rate between 5% and 5.25%, snapping the streak of rate hikes that the Federal Reserve enacted in March 2022.
Foregoing another rate hike allows the U.S. economy to take a breather from the Fed’s 15-month campaign to tame elevated inflation and recent banking turmoil—attributable to the rate to a large degree—that added more uncertainty for the economy in recent months.
Following their June meeting, Fed officials indicated that the pause “allows the Committee to assess additional information and its implications for monetary policy.”
The meeting minutes point out that FOMC (Federal Open Market Committee) members discussed several risk-management considerations that could affect future policy decisions.
With inflation still well above the Fed’s longer-run goal and the labor market remaining tight, members voiced concerns that “upside risks to the inflation outlook or the possibility that persistently high inflation might cause inflation expectations to become unanchored.”
“Even though economic activity had been resilient recently and that the labor market remained strong, some participants commented that there continued to be downside risks to economic growth and upside risks to unemployment,” the minutes said.
Meeting minutes indicated that there were some concerns that tighter credit conditions for households and businesses were likely to weigh on economic activity, hiring and inflation. The extent of that impact is still uncertain, according to the minutes.
Against that backdrop, economic forecasts during the meeting suggested that a “mild recession” was still on the table for later this year before a “moderately paced recovery.”
Looking ahead, all participants still expect that “maintaining a restrictive stance for monetary policy” would be needed to reach the Fed’s goals for inflation and the economy.
“Most participants observed that uncertainty about the outlook for the economy and inflation remained elevated and that additional information would be valuable for considering the appropriate stance of monetary policy,” the minutes said.
That will likely include resuming rate hikes this year as FOMC members signaled that at least two more increases would occur before the end of 2023.
Considering that there are roughly two weeks left before the next Fed meeting, it’s still unclear whether the Fed will opt to raise rates again this month, though June’s meeting minutes offer some insight into its proclivity to resume its inflation taming efforts.
“Most participants observed that uncertainty about the outlook for the economy and inflation remained elevated and that additional information would be valuable for considering the appropriate stance of monetary policy,” the minutes said.
While more rate hikes appear imminent, the Fed will likely pull back on the pace of its increases “in order to provide additional time to observe the effects of cumulative tightening and assess their implications for policy.”
