by Howard Schneider and Michael S. Derby
WASHINGTON (Reuters) – U.S. Federal Reserve (Fed) officials were divided at July’s monetary policy meeting on the need for further interest rate hikes, with “some participants” expressing concern risks to the economy, shows the minutes of the meeting.
According to these “minutes”, published on Wednesday, “most” central bank officials said they wanted to continue to focus on the fight against inflation.
The July 25-26 meeting concluded with a unanimous 25 basis point hike in interest rates, following a pause in the Fed’s monetary tightening campaign in June.
“Participants remained resolute in their commitment to bring inflation back (…) to the 2% target,” read the minutes. “Most participants continued to see significant upside risks to inflation, which may require further monetary policy tightening.”
However, members of the monetary policy committee with a more measured stance appear to have played a more prominent role in the discussions over the past month, a sign that opinions within the Fed are starting to multiply as the central bank studies any element. indicating a decline in inflation and the potential impact of further rate hikes on employment and economic growth.
Two participants in the meeting thus advocated maintaining the rates as they were last month, it is indicated in the “minutes”.
While the majority of officials again identified inflation as a key risk, “some participants” noted that, “although economic activity has been resilient and the labor market has remained strong, there are downside risks decline in economic activity and a risk of an increase in the unemployment rate”.
“This includes the possibility that the macroeconomic effects of the tightening of financial conditions since the beginning of last year prove to be more substantial than anticipated,” the minutes read.
Broadly, it added, Fed officials agreed that the level of uncertainty remained elevated and that future rate decisions would depend on “all” data arriving “in the coming months” in order to ” help to clarify the extent to which the process of disinflation has continued”. This could indicate that the Fed will take a more patient approach before deciding on any further rate hikes.
July’s monetary policy meeting came ahead of the release of data showing a key price pullback this summer and a simultaneous ebb in job creation.
Investors concerned about federal rates are mostly betting on the fact that the Fed will not make another hike during the current monetary tightening cycle. A break is anticipated at the September 19-20 meeting.
(Reportage Howard Schneider; French version Jean Terzian, edited by Jean-Stéphane Brosse)
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