Fed Minutes Reveal Some Participants Favored Larger Rate Hike
While the Federal Reserve’s decision to further slow the pace of interest rate hikes at the latest monetary policy meeting was unanimous, the minutes of the meeting revealed some participants favored a larger rate increase.
The minutes of the January 31-February 1 meeting, released Wednesday afternoon, said a “few participants” favored raising rates by 50 basis points compared to the 25 basis point rate hike that was ultimately announced.
“The participants favoring a 50-basis point increase noted that a larger increase would more quickly bring the target range close to the levels they believed would achieve a sufficiently restrictive stance, taking into account their views of the risks to achieving price stability in a timely way,” the Fed said.
The Fed members eventually agreed to raise the target range for the federal funds rate by 25 basis points to 4.50 to 4.75 percent.
The smaller rate hike came after the central bank raised rates by 75 basis points in November and by 50 basis points in December.
The minutes noted all participants continued to anticipate that ongoing rate increases would be appropriate to achieve the Fed’s dual goals of maximum employment and inflation at the rate of 2 percent over the longer run.
Participants determined that future rate hikes should take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
The Fed said participants also observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2 percent, which was likely to take some time.
The minutes acknowledged that inflationary pressures have moderated but noted price growth remains well above the Fed’s 2 percent target, with labor market tightness contributing to continuing upward pressures on wages and prices.
The Fed’s next monetary policy meeting is scheduled for March 21-22, with CME Group’s FedWatch Tool currently indicating a 79.0 percent chance of another 25 basis point rate hike and a 21.0 percent chance of a 50 basis point rate hike.
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