The Federal Reserve’s July 26-27 meeting minutes released on Wednesday (17th) showed that the pace of future interest rate hikes will depend on the economic data released next, with some officials saying that interest rates will need to be released “for some time.” Maintain “sufficiently stringent levels” to keep inflation under control. That means Fed officials may not consider raising rates until inflation falls sharply, although the minutes also mentioned that a slower pace of rate hikes at some point in the future may be appropriate.
While the minutes did not give guidance on rate hikes for the Sept. 20-21 meeting, the minutes showed policymakers pledged to raise rates as much as possible to control inflation.
There is still room for interest rate hikes after 3 consecutive rate hikes
According to the minutes of the meeting, when the stance of monetary policy was discussed at the July meeting, officials at the meeting indicated that there is still room for interest rate hikes after the aggressive rate hike in July.
Participants noted that the 2.25%-2.5% range for the federal funds rate is at a “neutral” level that neither stimulates nor restricts market activity. Even so, with inflation climbing and forecast to remain elevated in the near term, some participants emphasized that the real federal funds rate may remain below near-term neutral levels after a rate hike at the July meeting.
It would be appropriate to slow the pace of rate hikes at some point in the future
With inflation still well above the Federal Open Market Committee’s (FOMC) target, meeting minutes noted that meeting the Committee’s dual mandate of full employment and price stability would require a restrictive policy stance.
Notably, the minutes reflected that once the Fed is comfortable with its policy stance and sees its impact on inflation, it may begin to slow the pace of rate hikes.
According to the minutes of the meeting, participants believed that it may be appropriate to slow down the pace of policy rate hikes at some point as the stance of monetary policy tightens further, while assessing the impact of cumulative policy adjustments on economic activity and inflation.
Rate hikes still depend on economic data
Some participants said that once the policy rate reaches a sufficiently restrictive level, it may be appropriate to hold it there for a period of time to ensure inflation is steadily back on track to 2 percent, minutes of the meeting showed.
Fed officials said that future interest rate decisions will depend on the next economic data, but also said that there is little sign that inflation is weakening. The minutes of the meeting repeatedly emphasized the Fed’s determination to reduce inflation, and further pointed out that it may take “a period of time”, policy to have a meaningful impact.
Reiterated that inflation has deep-rooted risks
Minutes of the July meeting reiterated that participants believed that one of the risks facing the FOMC committee is that high inflation could become entrenched if the public begins to doubt the committee’s resolve enough to ensure a change in policy stance.
The minutes of the meeting also mentioned that if such a risk materializes, it would complicate the task of returning inflation to 2% and potentially make raising interest rates more costly to the economy.