Fed Officials Were Split Over June Rate Pause, Minutes Show

Fed Officials Were Split Over June Rate Pause, Minutes Show

Federal Reserve officials were unanimous in their decision to raise interest rates earlier in the month, but were divided on whether further hikes would be needed to bring inflation under control, according to the latest Fed minutes released on Wednesday session emerges.

The Fed voted on May 3 to raise interest rates by a quarter point to a range of 5 to 5.25 percent. This is the tenth straight hike since the central bank began its campaign to curb inflation last year. Although officials left the door open for more rate hikes, the minutes make it clear that “several” policymakers were leaning towards pause.

“Several participants noted that further tightening of policy after this meeting may not be necessary if the economy develops in line with its current prospects,” the minutes read.

Still, some officials believed that “at future meetings, additional monetary tightening would likely be warranted” as progress towards returning inflation to the central bank’s 2 percent target could remain “unacceptably slow”.

Policymakers believed that the Fed’s actions over the past year had contributed significantly to the tightening of financing conditions and noted that the labor market was beginning to ease. However, they agreed that the labor market is still too hot given the sharp pick-up in job growth and an unemployment rate close to historically low levels.

Officials also agreed that inflation was “unacceptably high”. Although price hikes have shown signs of slowing in recent months, the decline has been slower than officials expected, and officials feared consumer spending could remain strong and keep inflation high. However, some pointed out that tighter credit conditions could slow household spending and business investment.

Fed officials believed the US banking system was “solid and resilient” after the collapses of Silicon Valley Bank and Signature Bank this year caused turmoil in the banking sector. Despite noting that banks might cut lending, policymakers said it was too early to predict how big the impact of the credit crunch might be on the broader economy.

One cause for concern for policymakers has been the risky scramble over the country’s debt ceiling, which limits how much money the United States can borrow. If the cap is not raised by June 1, the Treasury Department could be unable to pay all of its bills on time, resulting in a default. Many officials said it was “essential that the debt ceiling is raised in a timely manner” to avoid the risk of severely damaging the economy and shaking financial markets.

The central bank’s next move remains uncertain as policymakers continue to leave their options open ahead of their June meeting.

“Whether we should hike or skip rates at the June meeting will depend on how the data comes in over the next three weeks,” Federal Reserve Governor Christopher Waller said in a speech on Wednesday.

Minneapolis Fed President Neel Kashkari said in an interview with the Wall Street Journal last week that at the June 13-14 meeting he could make a case for keeping interest rates stable to give policymakers more time to give an estimate of the development of the economy.

“I’m open to the idea that we can slow down a bit from here,” he said.

Officials have reiterated they will continue to monitor incoming data before making a decision. On Friday, the Commerce Department will release a new reading of the Personal Consumption Spending Index, the Fed’s preferred measure of inflation. Early next month, the federal government will also release new data on May employment growth.