“Most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy,” according to minutes of the US central bank’s July 25-26 policy meeting published Wednesday in Washington.
“Some participants commented that even though economic activity had been resilient and the labour market had remained strong, there continued to be downside risks to economic activity and upside risks to the unemployment rate,” the Fed said.
Policymakers raised the target range for their benchmark rate by a quarter point at the meeting, to 5.25% to 5.5%, the highest level in 22 years. That marked a resumption of increases after they left rates unchanged at the previous gathering for the first time since early 2022.
While quarterly projections last updated in June showed most officials at the time favoured two more increases in 2023, Chair Jerome Powell emphasized after the July decision that the Fed would take things meeting by meeting.”We intend again to keep policy restrictive until we’re confident that inflation is coming down sustainably to our 2% target, and we’re prepared to further tighten if that is appropriate,” Powell told reporters on July 26.
Consensus Fraying
Public remarks from officials on the Federal Open Market Committee since the July meeting suggest the strong degree of consensus underpinning the aggressive tightening campaign of the last year and a half may be starting to fray.Some, such as Philadelphia Fed President Patrick Harker, have indicated the central bank might not need to keep raising interest rates. Others, including Fed Governor Michelle Bowman, have taken the opposite view.
“A number of participants judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the committee’s goals had become more two-sided, and it was important that the committee’s decisions balance the risk of an inadvertent overtightening of policy against the cost of an insufficient tightening,” the minutes stated.
Investors currently do not expect another rate increase this year, according to futures contracts, though the implied odds of a hike at the October 31-November 1 meeting are higher than those for their next meeting on September 19-20.