Fed Minutes Show 75bps Hike Appropriate in July
Members of the Federal Reserve’s monetary policy-setting committee determined at its meeting last month that increases the policy rate by another 50 or 75 basis points “would likely be appropriate” in July to tame red-hot inflation, minutes from the meeting released Wednesday showed.
At its June meeting, the Federal Open Market Committee raised the federal funds rate by 75 basis points, its biggest increase in nearly 30 years, in response to inflation levels not seen in about four decades. The bank has increased rates at each of the last three meetings, with further hikes likely to follow at upcoming meetings.
“Participants concurred that the economic outlook warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist,” the minutes showed.
However, FOMC members acknowledged that policy tightening could slow the pace of economic growth, even as data available by mid-June showed second-quarter real gross domestic product rebounding “to a moderate rate of increase” following a decline in the previous quarter.
“Participants recognized that policy firming could slow the pace of economic growth for a time, but they saw the return of inflation to 2% as critical to achieving maximum employment on a sustained basis,” according to the document. READ: FOMC to Raise Federal Funds Rate ‘Soon’
The committee said some measures of longer-term inflation expectations moved up “somewhat” while the consumer price index registered an 8.6% annual jump in May. The minutes showed that panellists said they needed to adopt an aggressive policy to assure markets about their commitment to bring inflation down.
“Many participants judged that a significant risk now facing the committee was that elevated inflation could become entrenched if the public began to question the resolve of the committee to adjust the stance of policy as warranted,” according to the meeting summary.
Participants said factors like the Russia-Ukraine war and recent COVID-19 lockdowns in China will likely affect the inflation outlook, the minutes showed. The next FOMC meeting is scheduled for July 26 and July 27. #Fed Minutes Show 75bps Hike Appropriate in July
