Federal Reserve officials concluded the need to further lift interest rates had become “less certain” as economic risks had increased, although the US central bank remained open to additional rate rises if warranted by the data, according to an account of their latest meeting. Minutes from the May meeting, when the Federal Open Market Committee delivered its 10th consecutive rate rise in just over a year, confirmed that the US central bank is considering whether to pause to its aggressive monetary tightening campaign as it assesses how much more it needs to squeeze the economy to control inflation.
Citing both the “lagged effects” of the Fed’s previous rate rises, as well as the specter of tighter credit conditions stemming from the recent bank failures, participants “generally agreed” that “the extent to which additional increases in the target range may be appropriate after this meeting had become less certain”. The quarter-point increase in May lifted the federal funds rate to a target range of 5-5.25 per cent, the highest since mid-2007. The rate is in line with the peak level most officials forecast when projections were last released in March.
The Fed said in March that additional rate rises “may be appropriate” to tame inflation; however, in guidance this month, it said officials would consider incoming data and how much its increases had already affected the economy as they determined how much higher rates would have to rise. Fed chair Jay Powell described that change as “meaningful”. The minutes showed differences among committee members over further rate increases. Many participants stressed the need for the Fed to “retain optionality after this meeting”, with some believing further action would be warranted if inflation continued to decelerate slowly, according to the minutes.
Source: Financial Times