Minutes from the latest US Federal Reserve meeting indicate that officials were divided on whether to implement another interest rate hike.
The vote to raise rates by 0.25% was unanimous, but the minutes tell a story of two opposing schools of thought.
Specifically, “some” members argued that the progress in reducing inflation has been “unacceptably slow” and thus more rate hikes will be necessary. Conversely, “several” members argued that a slowdown in growth would mitigate the need to raise rates further.
Some and several are terms the FOMC often uses in its minutes without referring to individual or distinct groups of members. It is generally believed that several refers to more than some.
Although the FOMC settled on a rate increase, the Committee also voted to remove the phrase, “additional policy firming may be appropriate” from its post-meeting statement.
“Participants generally expressed uncertainty about how much more policy tightening may be appropriate,” the minutes stated. “Many participants focused on the need to retain optionality after this meeting.”
“In light of the prominent risks to the Committee’s objectives with respect to both maximum employment and price stability, participants generally noted the importance of closely monitoring incoming information and its implications for the economic outlook.”
Broadly speaking, market futures indicate that May is likely the last rate increase of this tightening cycle and that the Fed could reduce rates by the end of the year. That would likely mean the economy falls into a recession and inflation falls closer to the Fed’s target of 2%.
Fed officials haven’t expressed the same sentiment, however.
One member of the Fed’s board of governors, Christopher Waller said in a speech Wednesday that he falls more in the camp of more rate hikes being necessary.
“I do not expect the data coming in over the next couple of months will make it clear that we have reached the terminal rate,” Waller said. “And I do not support stopping rate hikes unless we get clear evidence that inflation is moving down towards our 2% objective. But whether we should hike or skip at the June meeting will depend on how the data come in over the next three weeks.”
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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