Fed Officials Were Split Over June Rate Pause, Minutes Show
Federal Reserve officials were unanimous in their decision to raise interest rates earlier this month, but disputed whether additional hikes would be necessary to bring inflation under control. Minutes from the Fed’s last meeting Released on Wednesday.
The Fed voted on May 3 to raise interest rates by a quarter-point to a range of 5 to 5.25 percent, the 10th straight increase since the central bank began its campaign to rein in inflation last year. Although officials left the door open to more rate hikes, the minutes made clear that “many” policymakers were leaning toward a pause.
“Several participants noted that if the economy develops along their current outlook, further policy tightening may not be necessary after this meeting,” the minutes said.
Still, some officials believe “additional policy tightening will be warranted in future meetings” as progress in bringing inflation back to the central bank’s 2 percent target could be “unacceptably slow.”
Policymakers believe the Fed’s moves over the past year have contributed significantly to tighter financial conditions, and they note that labor market conditions are beginning to ease. But they agreed that the labor market was still very hot, given the strong gains in job growth and the unemployment rate near historically low levels.
Officials also admitted that inflation was “unacceptably high”. Although price increases have shown signs of moderating in recent months, the decline was slower than officials expected, and officials were concerned that consumer spending could remain strong and keep inflation high. Some noted, however, that tighter credit conditions could slow household spending and reduce business investment.
Fed officials believe the US banking system was “stable and resilient” after the collapse of Silicon Valley Bank and Signature Bank this year caused turmoil in the banking sector. Although they noted that banks are holding back on lending, policymakers said it was too early to tell how big an impact credit tightening could have on the overall economy.
One source of concern for policymakers was the nation’s debt ceiling, the limit on how much money the United States could borrow. If the limit is not extended by June 1, the Treasury may be unable to pay all its bills on time, resulting in default. Many officials said it was “imperative that the debt ceiling be raised in a timely manner” to avoid the risk of severely damaging the economy and upsetting financial markets.
The central bank’s next move remains uncertain, with policymakers continuing to leave their options open ahead of their June meeting.
Dallas Fed President Lori Logan said last week that, based on recent data, another rate hike in June could be possible. Still, he admitted it was too early to tell.
“Data in the coming weeks may still show that skipping the meeting is appropriate,” Ms Logan said in a speech on Thursday. “As of today, though, we’re not there yet.”
Minneapolis Fed President Neel Kashkari, in one Interview with the Wall Street Journal Last week, said he may support keeping rates steady at the June 13-14 meeting to give policymakers more time to assess how the economy is shaping up.
“I’m open to the idea that we can move a little more slowly from here,” he said.
Officials have reiterated that they will continue to monitor incoming data before reaching a decision. On Friday, the Commerce Department will release an updated reading of the personal consumption expenditure index, the Fed’s preferred gauge of inflation. Early next month, the federal government will also release new data on job growth in May.