Some Federal Reserve officials pushed to raise the Fed’s key interest rate by one-quarter of a percentage point at their meeting last month to intensify their fight against high inflation, though the central bank ultimately decided to forgo a rate hike.
In a sign of growing division among the policymakers, some officials favored a quarter-point increase or said they “could have supported such a proposal,” according to the minutes of the June 13-14 meeting released Wednesday. In the end, the 11 voting members of the Fed’s interest-rate setting committee agreed unanimously to skip a hike after 10 straight increases. But they signaled they might raise rates twice more this year, beginning as soon as this month.
In Fed parlance, “some” is less than “most” or “many,” evidence that the support for another rate hike was a minority view. And some who held that view were likely unable to vote at the meeting; the 18 members of the Fed’s policymaking committee vote on a rotating basis.
Though last month’s vote to keep rates unchanged was unanimous, it is relatively uncommon for the central bank to stipulate in the minutes of Fed meetings that some officials had disagreed with the committee’s decision.
Twelve of the 18 members of the rate-setting committee projected at least two more rate hikes this year, according to the members’ projections released last month. Four envisioned one more increase. Just two officials foresaw keeping rates unchanged.
The officials who had favored a rate hike last month said that “there were few clear signs that inflation was on a path to return” to the Fed’s 2% objective anytime soon. The decision to forgo an increase left the Fed’s key rate at about 5.1%, the highest level in 16 years.
At the same time, a majority of officials signaled that they expect to raise rates twice more this year — once more than had previously been expected. In their quarterly economic projections, the policymakers also forecast higher inflation and modestly stronger growth than they had envisioned in June. Those upward revisions are a sign that the economy has been more resilient than Fed officials have expected.
The Fed’s aggressive rate hikes have made mortgages, auto loans, credit cards and business borrowing increasingly expensive.
Many economists described the message from last month’s Fed meeting as a blurry one. On the one hand, the central bank chose not to raise borrowing costs. And Chair Jerome Powell said at a news conference that the Fed was slowing its rate hikes to allow time to assess their impact on the economy.
On the other hand, the officials’ forecast for two more rate hikes suggested that they still believe more aggressive action is needed to defeat high inflation.
Some economists expect the Fed to raise rates at every other meeting as it seeks to pull off a difficult maneuver: raising borrowing costs high enough to cool the economy and tame inflation yet not so high as to cause a deep recession.
Powell has said that while a hike at every other meeting is possible, so is the prospect that the Fed might decide to raise rates at consecutive meetings. Economists and Wall Street traders consider a rate hike at the Fed’s next meeting in three weeks to be all but assured.
The Fed’s staff economists have continued to forecast a “mild recession” for later this year. They presented a similar forecast at the Fed’s prior two meetings.